-In the Above Figure, If Price Is Equal to P4

question 117

Multiple Choice

-In the above figure, if price is equal to P4, the firm will

• A) earn positive economic profits.
• B) incur an economic loss.
• C) earn zero economic profits.
• D) shut down.

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Definitions:

Profit

The financial gain obtained when the revenues generated from business activities exceed the expenses, costs, and taxes needed to sustain those activities.

Kinked-demand Curve

A demand curve that has a distinct bend or kink at a certain price level, often used to describe oligopolistic markets where firms face a different elasticity of demand for price increases versus price decreases.

Relatively Elastic

Describes a situation where the quantity demanded or supplied of a good or service changes significantly due to a small change in price.

Relatively Inelastic

This term describes a situation where the demand for a good or service changes by a smaller percentage than the changes in price, indicating that consumers are less sensitive to price changes.