Managerial Economics Profit Analysis

The assignment content discusses managerial economics and its application to a company's decision-making process in the short run. It presents different scenarios where the market price affects the organization's average cost, total revenue, and profit. The scenarios include situations where the organization earns positive or negative economic profits, leading to decisions on whether to continue operating or shut down operations.

Running Head: Managerial Economics
managerial economics

Managerial Economics 1
Question 4
Answer a.
At the market price of $6, the price will be greater than the average cost. Due to the increment in
price the organization earns a positive economic profit. It means that the organization
continuously operate in the short run. It is because the organization earns a positive profit (Mas-
Colell, 2014).
Answer b.
At a market price of $3, the average total cost of the organization will be greater than the price
whereas the average cost of the variable is less than the price. It means that at the market price of
$3, the total revenue is less than the total cost. This indicates that the organization is operating at
a negative or a loss economic profit. In spite of loss the organization will operate in short run
continuously (Kant, 2016). It is because the organization prices are higher than the average cost
of the variable.
Answer c.
At the market price of $1, the average cost of the variable is greater than the price making. On
the other hand, total revenue of the organization is also less than the total cost of the
organization. It means that the organization is operating at a negative or loss economic profit.
Moreover, the organization will shut down its operations at short run due to the absence of
revenue that will cover the variable cost and fixed costs.
Answer d.

Managerial Economics 2
A point: At A point, the marginal cost of the organization is lower than the average costs of the
variable. At this point, the organization is operating at a total loss as its overall profit is lower
than the total costs. On the other hand, at this point, the organization will be forced to close its
operations to reduce the level of loss (Awad, 2014).
B point: At B point, the marginal cost of the organization is equal to the average cost of the
variable. At B point, the organization enhances profit and reduces loss by manufacturing an
output where marginal cost is equal to marginal price.
C point: At C point, the marginal cost of the organization is equal to the average total cost. On
the other hand, the average total cost of the organization is reduced, and it is known as the break-
even point. At this level, the profit of the organization is zero. Furthermore, profit of the
organization will increase with increment in price.

Managerial Economics 3
References
Awad, A. S., Fuller, J. D., El-Fouly, T. H., & Salama, M. M. (2014). Impact of energy storage
systems on electricity market equilibrium. IEEE Transactions on Sustainable Energy, 5(3), 875-
885.
Kant, S., Deegen, P., Hostettler, M., Wang, S., Xu, J., & Valatin, G. (2016). New Frontiers of
Forest Economics: Forest economics beyond the perfectly competitive commodity markets.
Mas-Colell, A. (Ed.). (2014). Noncooperative approaches to the theory of perfect
competition (Vol. 3). Academic Press.