Refer to Figure 12-18. Use the figure above to answer the following questions
a. How can you determine that the figure represents a graph of a perfectly competitive firm? Be specific; indicate which curve gives you the information and how you use this information to arrive at your conclusion.
b. What is the market price?
c. What is the profit-maximizing output?
d. What is total revenue at the profit-maximizing output?
e. What is the total cost at the profit-maximizing output?
f. What is the profit or loss at the profit-maximizing output?
g. What is the firm's total fixed cost?
h. What is the total variable cost?
i. Identify the firm's short-run supply curve.
j. Is the industry in a long-run equilibrium?
k. If it is not in long-run equilibrium, what will happen in this industry to restore long-run equilibrium?
l. In long-run equilibrium, what is the firm's profit maximizing quantity?
a. The perfectly competitive firm is a price taker and therefore faces a perfectly elastic demand curve which is also the MR curve.
b. Market price = $40
c. Profit maximizing output = 200
d. Total revenue = $40 × 200 = $8,000
e. Total cost = ATC × total output = $24 × 200 = $4,800
f. Profit = Total revenue - total cost = $8,000 - 4,800 = $3,200
g. Total fixed cost = AFC × total output = (ATC - AVC) × 150 = $6 × 150 = $900. (Note: fixed cost has the same value at all output rates)
h. The total variable cost at the profit maximizing output level = ($4,800 -
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Market failure occurs when
A) a good is too expensive for the market to provide. B) an unrestrained market economy leads to too few or too many resources going to a specific economic activity. C) one good is superior to another and drives it out of the market. D) the stock market experiences a very large loss.
Near an ocean beach, a high-rise building is being constructed that will block the scenic view of the ocean by the residents of a low-rise building. The Coase theorem suggests that this type of dispute between the owners of high-rise and low-rise
buildings: A. Can be resolved by the owners themselves through individual bargaining B. Has to be resolved by city government officials C. Can only be resolved by a zoning ordinance restricting high-rise buildings D. Should be resolved by a government fine for the builder of the high-rise