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JAMB Economics 1991 Question 13

Question 13

Market Structures

Use the diagram (MC and AC curves with MR = AR lines at R and P). The excess profit made by the firm in the short-run is represented by

Diagram for this question
  1. A.ORTZ
  2. B.OPVY
  3. C.QRTW
  4. D.ORSX
Show the answer and explanation

Answer: C (QRTW)

Explanation

In the short run price is OR and the firm produces OZ where MC = MR at T. Average cost at that output is ZW = OQ, so the supernormal profit is the rectangle QRTW.