Question

Question 1A

Using the axes as constructed below, depict marginal revenue and marginal cost curves that would support the conclusion that the optimal short run output is q = 1000. Be sure to label all important values. Upload graph

Question 1B

Is this a short run equilibrium? Explain.

Question 2A

Reproduce your graph from Question 1, but add an average total cost curve to the picture in such a way that the firm is earning zero profits (π = 0).

Upload your graph.

Question 2B

Does your graph in Question 2A depict a short run equilibrium? If so, explain why. If not, explain why not.

Question 3A

Again, reproduce your graph from Question 1. For this question, depict a different ATC curve, one where the firm has negative profits (π < 0) at the profit maximizing output of 1000. Add an additional average cost curve that will allow you to determine whether to shutdown or keep producing at Q = 1000.

Question 3B

Should the firm produce Q = 1000 in the short run or should it shutdown, producing Q = 0?

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Answer 1

Does your graph in Question 2A depict a short run equilibrium? If so, explain why. If not, explain why not.