I'd agree, but the examiners report says the answer is B which is why I'm confused.
Code:
Output "Profit" Marginal revenue Marginal costs
0 - 100 -100 500 600
100 - 200 300 500 100
200 - 300 300 200 200
300 - 400 700 700 300
400 - 500 -300 100 1100
They're in a long-run equilibrium which implies that MR = MC. This will actually occur three times for the given figures, but for the sake of argument it looks like the examiners were expecting the answer "200 - 300" as they are explicitly equal in the workings above. However, at this level the company is making supernormal profits so it can't be B.
I agree that they're making normal profits between 100 - 200 and 400 - 500, and the other places that MR = MC are somewhere in 0 - 200 and 300 - 500, but it's impossible to be more exact than that. That suggests to me that the answer could be A or D, but equally it may not be depending on the shape of the curves.
I almost wonder if there's a typo in the question or the answer... but it seems more likely that I'm missing something very obvious.
Last edited by a moderator: Sep 3, 2008