What is the value of llamatons economic profit or loss

Reference no: EM133659106

Problem

As always, make certain you label all axes and curves.

Llamaton is a firm in a perfectly competitive, constant-cost industry. Its total cost function is shown below:

Units	Total Cost
0	$25
1	$28
2	$30
3	$36
4	$48
5	$64
6	$96

1. What is Llamaton's average fixed cost if it produces 5 units?

2. Explain one way that being in a perfectly competitive market affects Llamaton.

3. If the market price is $12, what is Llamaton's profit-maximizing or loss-minimizing level of output? Explain.

4. Based on your answer to part (3), what is the value of Llamaton's economic profit or loss?

5. Using two completely labeled side-by-side graphs, illustrate how the market sets the short-run demand for Llamaton. (Base your graphs on the perfect competition model, not the prior data.) Label the market equilibrium price Pe and quantity Q_e. Label the profit-maximizing quantity for Llamaton Qf. Assume that Llamaton is earning normal profit.

6. Illustrate the short-run effect of a decrease in market demand on your graphs from part (5). Label the new market equilibrium price Pe2 and quantity Q_e2. Label the new profit-maximizing quantity for Llamaton Qf2. Shade completely the area of Llamaton's economic profit or loss.

7. What would happen to this industry in the long run and to Llamaton's economic profit or loss if it stays in the industry? Explain.

8. In two side-by-side graphs, draw a new perfectly competitive market and individual firm experiencing short-run economic profits. Illustrate what will happen to the market in the long run and the impact on the firm's profits. Be sure to completely label your graphs.

Reference no: EM133659106

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