Question

2 x 20 = 40
1. (a) “A perfect competitive firm incurring losses in the short-run may loose even more by shutting
down." Discuss.
10
(b) Consider Figure 1 below where MC, ATC, AVC, D, and AR represent the marginal cost,
average total cost, average variable cost, demand, and average revenue curve respectively
under a perfect competition. Based on the figure, answer the following questions: 10
(i)
What is the profit maximising level of output for this firm in the short-run? At this quantity,
what is the marginal revenue?
How much is the total cost for this firm in the short-run equilibrium?
(iii) In the short run, is the firm making economic profit or suffering loss? How much is that
profit or loss? Should the firm shut down?
(iv) What is the fixed cost of production faced by this firm?
(v) What is the break-even price for this firm? What is the shut down price for this firm?
(vi) If fixed cost increases further, what impact will this have on this firm's profit maximising
level of output in the short run?
MC
Profit, Revenue, Cost
48
45
ATC
AVC
D = AR
50 55
Figure 1
Quantity​

Answer 1

Answer:

i can't understand this question

Answer 2

Answer:

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