## Answers

The market price is $29, at this price Ted’s bicycle store will produce 7 bicycles. The store will choose to produce each level of output where its MC=MR (P). When it produce 7 bicycles, it’s per unit revenue is $29 but per unit cost is $19. Thus it earns a per unit profit of $10. Thus Ted’s store is making economic profit in shortrun.

The positive economic profit is not sustainable in longrun.

The economic profit earing situation will attract new bicycle stores into the market. As new stores enter into the market, the market supply increase which will lower the market price. The entry of new bicycle stores will continue till the market price falls to average total cost and in longrun all stores will earn zero economic profit.

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