#2

2) Profit Maximization (15 points) Consider a perfectly competitive market for Wi.dgets. Suppose the market determines a market price of $55 and a total quantity of 1,000,000 units per month. Depict the following in a graph. At this price, the firm finds its profit-maximizing quantity is 80 units per month. The average Total Cost is $50 and the Average Variable Cost is $45 at this quantity. Is this firm earning economic profits or losses? Calculate fixed costs, should this firm stay open (produce 80 units) or close (produce zero units) in the short run