Question 1 (f)

Just cover opportunity costs --> Normal profit --> P = ATC

$Definitions: accounting versus normal profit Accounting profit = TR — explicit costs Normal profit is the level of profit which is sufficient to keep the resources employed (rather than transfer them to something else). If you have to calculate it, it is the opportunity cost. E.g. running your own business may earn you E20,000 but you may have given up a job paying you E25,000. so you have given up 25,000 for 20,000\! = E25,OOO Normal profit = Opportunity cost https://www.youtube.com/watch?v=FqttpKZZz70 http://openqecko.com/economics/profit/ Video on economic cost, economic profit$

Question 2 (a)

Deadweight loss should be the area between MSB and MPB, not MSC and MPB

$Negative Externalities Because of the external cost, marginal social cost is over marginal private cost \*The social quantity demand Qs QP \> Qs -5 Market Failure Cost benefit MSC Deadweight loss of externality / Welfare loss sociöl optimum output MPC MPB Output$

$Positive Externalities Because of the external benefit, marginal social benefit is over marginal private benefit \*The social quantity demand Qs Qs -5 Market Failure Cost benefit Deadweight loss of externality / Welfare loss MPC MPB social optimum output Output Qs$

The increase in the price of hats raises the marginal revenue product, hence the demand for labor