The firm Narwhals R Us produces food for narwhals. The business is operating in a competitive industry and experiences the following:

• marginal revenue = $7
• marginal cost = marginal revenue at $7
• marginal cost = average variable cost at $4
• marginal cost = average total cost at $6

(a) Draw an accurately labeled graph of this firm's production with MC, MR, AVC, and ATC all represented.Label the profit-maximizing quantity Qpm.

(b) Explain how to determine the profit-maximizing level of production.

(c) If the average total cost (ATC) is $5 at the point that MC = AVC, what is the average fixed cost (AFC) at that point?

(d) Is the firm earning economic profit or incurring a loss? Explain.

(e) On your graph from part (a), shade the area of the firm's profit or loss.