The followinggraph shows the long-rmequilibrium for Arwin Bhd Price MO 18-1 15 -- 10 Output 10 20 a Calculate the profit maximizing price and output (2 marks) b) Arwin Bhd is operating in a market (2 marks) Calculate the profit earned by the firm and explain the type of profit

Answer 1a : Profit maximizing level of output and price level is that where the firm has earnings maximum profit as follows

where MR =MC.

Therefore, output level is 10 units where as price charged is $18

b : Arwin Bhd is operating in a monopolistic market because in this case firm is earnings a profit and new firm has been entered in the business.

C : Profit earned by the firm = $3×10=$30 as it means that abnormal profit has been earned in the business and it has chance of entry new firms in the market structure in a logical manner.

Normal profit has been achieved by the monopolistic firm in the long run because there are no barriers to entry , firms produced differentiated product and therefore they are not price takers and they have inelastic demand.

D : Two characteristics of the monopolistic competition are :

1. Product differentiation in the market structure in a unique and different manner.
2. Freedom of entry and exist in the business structure in logical and systematic manner.