Question

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: (i) What is the profit maximising level of output for this firm in the short-run? At this quantity, what is the marginal revenue? (ii) 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) How much is fixed cost faced by this firm at equilibrium? Will it change if firm is not at equilibrium point? (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?​

Answer 1

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Answer 2

Answer:

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

Explanation:

i) What is the profit maximizing level of output for this firm in the short-run? At this quantity, what is the marginal revenue? (ii) 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) How much is fixed cost faced by this firm at equilibrium? Will it change if firm is not at equilibrium point? (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