Question

At your high school reunion, a friend describes his plan to take a break from his florist shop and sail around the world. He says that if he continues to make the same economic profit for the next 5 years, he will be able to afford the trip.

Do you think your friend will be able to achieve his dream in 5 years?

What is likely to happen to your friend's profits in the long run?

The figure below depicts a monopolistically competitive firm operating in the short run. Label the diagram with the items listed to the right of the figure. You will have to decide whether the firm is making a profit or a loss.

When Toyota increases its advertising, we expect the equilibrium price for Honda to _____ and the equilibrium quantity for Honda to ____

The figure below depicts a monopolistically competitive firm operating in the short run. Label the diagram with the items listed to the right of the figure. You will have to decide whether the firm is making a profit or a loss.

Answer 1

1. In the long run economic profit is zero. Here the time mentioned is 5 years which means long run profit.

Option A is correct.

2. In the long run his profit will be zero. Option C is correct.

3.

4. When Toyota increases its advertising expense then equilibrium price of Honda decreases and the equilibrium quantity for Honda increase.

5.

6. a. Firms earn economic profit.

b. Enter

c. This trend will continue until profits in the long run are positive.