Answer to Question #231900 in Microeconomics for RomanReignRotich

Question

With the aid of a clearly labeled diagram, illustrate the difference between;
i. A competitive firm making abnormal profits and subnormal profits (10
marks)
ii. A monopolist making normal profits and supernormal profits (10 Marks)
iii. What are the conditions for profit maximization? (5marks)

Answer 1

I)

ii

III) Company maximizes profit when it operate in as state where marginal cost is similar to marginal revenue. Considering short run, adjustments in fixed costs never influence profit maximizing price or output.