Acme is a perfectly competitive firm. It has the cost schedules ...

[cabate]

Acme is a perfectly competitive firm. It has the cost schedules given in the above table and has a fixed cost of 12.00. The price of Acme's product is 14.20.
 
  What is Acme's most profitable amount of output? What is Acme's total economic profit or loss?

Question 2

The use of a two-part price in a regulated natural monopoly
 
  A) maximizes the deadweight loss.
  B) allows the firm to maximize profits.
  C) may make it possible for the firm to obey a marginal cost pricing rule and not go out of business.
  D) All of the above answers are correct.

[Viet Thy]

Answer to Question 1

The profit maximizing level of output is either 7 or 8 units. Acme's total economic profit is the economic profit per unit times the number of units produced. The economic profit per unit equals the price minus the average total cost. To calculate average total cost, note that when Acme produces 8 units, the average variable cost per unit is 6.50 and the average fixed cost is 1.50, so Acme's aver-age total cost equals 8.00. Thus Acme makes an economic profit of 14.20 - 8.00 = 6.20 per unit. Hence Acme's total economic profit is (6.20 )  (8 units) = 49.60. Acme's total economic profit when it makes 7 units is (except for rounding) identical.

Answer to Question 2

C