Principle of Economics 2

Running head: Principle of Economics 2
Principle of Economics 2
Name of the Student
Name of the University
Student ID

Principle of Economics 21
Table of Contents
Answer 1..........................................................................................................................................2
Answer 2..........................................................................................................................................8
References......................................................................................................................................12

Principle of Economics 22
Answer 1
(a)
Figure 1: Average cost, marginal cost and price
Source: (Created by the Author)
(b)
Pizza-350
Worker -
5
50 100 150 200 250 300 350 400 450
0
5
10
15
20
25
30
35
40
45
Average cost Marginal cost Price ($)
50 100 150 200 250 300 350 400 450
0
5
10
15
20
25
30
35
40
45
Average cost Marginal cost Price ($)

Principle of Economics 23
Figure 2: Profit maximizing output and worker
Source: (Created by the Author)
(c) At profit maximizing output the firm’s economic profit is $1480
(d) In the long run the, the pizza shops with identical cost structure and zero barriers to entry and
exit, the firms will operate at minimum of long run average cost and charges price where it
equals average cost, marginal cost, marginal revenue and average revenue. Thus, in long run
pizza firms will make zero economic profit. The number of pizza produced and number of
workers respectively will decreases and equilibrium occurs at the minimum point of LAC. The
graphical illustration is given below in figure 3.