The table below shows the costs and revenue structure of a firm :
Let us present the cost and revenue graphically as shown below:
The table showing total revenue and profit is given below:
3. From the graph we can see that the profit maximizing level of output is 4.5. It is the point where the marginal cost (MC) curve cuts the marginal revenue (MR) curve . From the table above we can see that the maximum profit is $126.
4. Normal profit is included in the total cost of the firm. So when profit is 0 we say that the firm earns normal profit. When the profit figure is positive the firm earns super-normal or economic profit. In this example the firm is earning normal as well as economic profit .
5. The firm must be in a monopolistic competition or monopoly as the firm is making a downward sloping MR curve. Under perfect competition the firm faces a horizontal MR curve . In short run a monopoly as well as a monopolistic competition may earn super normal profit.
6. If this is long run equilibrium the firm is a monopolist because a monopolist only can earn super normal profit in the long run. (An oligopolist also may earn super normal profit but the demand and cost structure does not resemble a oligopoly).
References
Henderson, J. M. & Quandt, R. E., 2003. Microeconomic Theory: A Mathematical Approach. s.l.:McGraw Hill Education.
Koutsoyiannis, A., 2008. Microeconomics. s.l.:Macmillan Press Ltd..
Pindyck, R. & Rubinfield, D., 2009. Microeconomics. 7th ed. s.l.:Prentice Hall.
Varian, H. R., 2010. Intermediate Microeconomics A Modern Approach. 8th ed. New York: W. W. Norton & Company.
