Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Firm Aleph operates in a perfectly competitive market in a constant-cost industry and is earning negative economic profit. Why might Firm Aleph continue to operate
Firm Aleph operates in a perfectly competitive market in a constant-cost industry and is earning negative economic profit.
- Why might Firm Aleph continue to operate despite earning negative economic profit? Explain.
- Draw correctly labeled side-by-side graphs for Firm Aleph and the market it operates in. Label the axes and all of the following:
- Market price (PE) and market quantity (QE)
- The firm's quantity of output (Qe)
- The firm's average total cost (ATC)
- Completely shade the area of the firm's total revenue.
- Identify whether the following increase, decrease, or remain constant as the market moves to long-run equilibrium:
- Market equilibrium quantity
- Market equilibrium price
- Assume the product that Firm Aleph produces has a positive externality. Draw the marginal social benefit (MSB) on the market graph from part (b).
- Will the unregulated market produce more or less than the socially optimal quantity?
- Shade the area of deadweight loss caused by the externality, when the market is unregulated and in long-run equilibrium.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started