Questions: b) We cannot determine the firm's level of profit because we do not know about its revenues. c) It is earning negative economic profit. d) It is earning zero economic profit. e) Because this is the short run, all firms earn positive economic profit.

b) We cannot determine the firm's level of profit because we do not know about its revenues.
c) It is earning negative economic profit.
d) It is earning zero economic profit.
e) Because this is the short run, all firms earn positive economic profit.

Transcript text: b) We cannot determine the firm's level of profit because we do not know about its revenues. c) It is earning negative economic profit. d) It is earning zero economic profit. e) Because this is the short run, all firms earn positive economic profit.

Solution

Solution Steps

Step 1: Analyze the graph

The graph shows the standard cost curves for a firm, including Marginal Cost (MC), Average Total Cost (ATC), and Average Variable Cost (AVC). The quantities q₁, q₂, q₃, and q₄ represent different output levels.

Step 2: Identify missing information

The graph provides cost information but lacks revenue information. We need to know the market price the firm receives for its output to determine its profit or loss. Profit is calculated by (Price - Average Total Cost) * Quantity.

Step 3: Relate missing information to profit

Without the market price, we cannot determine the firm's profit. If the price is above ATC at a given quantity, the firm will earn positive economic profit. If the price is below ATC, the firm will earn negative economic profit (a loss). If the price equals ATC, the firm earns zero economic profit.