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A firm is currently producing 80 units of output. At this level of output produced, P=150 and ATC=120. Also assume that MC=130 and MR is constant at all output levels and equal to 150.
a. Is this firm making profits? If so, what are these profits?
b. Is this firm maximizing profits? If not, what would you reccommend this firm do to maximize profits? Why?
Now assume that production technology improves such that average total costs decline by $5 a unit. Describe the process this industry will go through as it moves to a new long-run equilibrium.
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