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  • Topic: Economics, Inverse demand function, Firm
  • Pages : 1 (291 words )
  • Download(s) : 34
  • Published : April 7, 2013
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A. How many DVDs should be sold to rent per day to maximize profit? Briefly explain your answer.
E=MR=MC=P
This point in the graph exists where MR=MC and this is the point where they meet and that point on X-axis is 55 DVDs per day (per quantity) and on Y-axis it is $1.75 (price and cost).
To maximize profit 55 DVDs need to be sold to rent per day to maximize profit.

B. What is the economic profit for this firm operating where economic profit is maximized?
Economic profile is calculated like this:
The point on which profit has been maximized as stated in part A is 55 DVDs and cost per DVD at this point is $1.75 so profit will be …..
55 X $1.75 = $96.25

C. Will this firm likely continue operating in the long run? Briefly explain your answer.
Yes, this firm will likely continue operating in the long run in similar fashion. Considering the above graph, it seems that as AVC is increasing which makes it seem that in the long run the firm could not operate in profit but this is untrue. It is a well known fact that AVC renders into FC (fixed costs) so this firm can carry on with profit.

D. Explain the impact on this firm of other firms leaving the market. Would this action alter your decision made in part C?
Other firms leaving the market would profit this firm because the demand of DVDs will shift towards this firm and this firm will have to fulfill the needs of customers. It is well depicted by the demand curve. This decision is not altering the decision in part C.
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