Assume that cellular telephone manufacturers are earning short-run economic profits. Draw a correctly labeled graph for a
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Question:
- Assume that cellular telephone manufacturers are earning short-run economic profits. Draw a correctly labeled graph for a typical firm in the industry and show each of the following.
- The profit-maximizing output and price
- The area representing economic profit
- At the profit-maximizing price you identified in part (a), would the typical firm's demand curve be price inelastic? Explain.
- Given the information in part (a), what happens to the demand curve for the typical firm in the long run? Explain.
- Using a new correctly labeled graph, show the profit-maximizing output and price for the typical firm in the long run.
- Does the typical firm produce an output level that minimizes its average total cost in the long run?
- In long-run equilibrium, does the typical firm produce the allocatively efficient level of output? Explain.
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