Microeconomics profit maximization

3.4 & 3.5 FRQ (Profit Maximization) Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to "Calculate," you must show how you arrived at your final answer. (a) Draw a correctly labeled graph showing a typical monopolistically competitive firm, Firm Z, in long-run equilibrium, and show each of the following. (i) The profit-maximizing price, labeled P (ii) The profit-maximizing quantity, labeled Q (iii) The allocatingly and productively efficient levels of output, labeled Q1 and Q2, respectively (b) Is firm Z making positive accounting profit? Explain. (c) Suppose, over the long run, that the Gobble Company in a different industry continues to make significantly higher economic profit than Firm Z and most other firms in other industries. What must be true in order for the Gobble Company to make more economic profit than firms in other industries in the long run? (d) Suppose that Firm Y raises the price of its product which increases the demand for Firm Z's product. Is Firm Z's product a complement or substitute for Firm Y's product? (e) Assume firm Z discovers a new way to display its product that takes customers away from its competitors. (i) What effect would this have on Firm Z's economic profits in the short run? Explain. (ii) Assume that, in time, competitors copy Firm Z's new display. What effect would this have on Firm Z's economic profits in the long run? Explain. 1. Respond to all parts of the