Question

If S3 is the market supply curve, then each firm in this market will earn an economic loss of ______ per week.

Answer 1

Answer: ($2,000)

Explanation:

With S3 as the supply curve, the equilibrium price is $10.

With this being a Perfectly competitive market, the profit maximising quantity will be where Price which is the same as Marginal Revenue equals Marginal cost.

That quantity is 200 gallons a week.

At this same level, the Average Total Costs are $20.

Profit (Loss) = (Price - ATC) * Quantity

= (10 - 20) * 200

= ($2,000)