Answer to Question 1
To calculate economic profit, we need to subtract total economic cost from total revenue. Total revenue is calculated by multiplying the price of the good by the number of units sold (8 x 150 = 1,200). To calculate economic profit, we subtract economic cost (1,000) from total revenue (1,200) and we get 200.
Answer to Question 2
The biggest difficulty that a command economy faces in determining which goods to produce is the fact that there are no prices in the economy which signal which goods and services are more highly valued than others. As a consequence since the decision to produce is often centralized either too little of some products are produced or too much is produced.
