To maximize profit, a firm will produce the level of output where MR = MC. If a firm actually makes a profit depends on the relationship of price to average total cost. What are the three possible relationships between price and average total cost that
determine if a firm will make a profit, experience a loss, or break even?
What will be an ideal response?
If P > ATC, the firm makes a profit.
If P < ATC, the firm experiences a loss.
If P = ATC, the firm breaks even.
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Suppose you were working for Richstone's bakery and calculating whether the bakery was making a profit, considering the recent increase in rent. You have the following data: P = $20, AVC = $10, AFC = $8 and quantity of birthday cakes produced a day is 20
a. loss of $10 b. profit of $10 c. profit of $20 d. profit of $40 e. loss of $40
Which of the following is a difference between a binding and a not binding price ceiling?
a. A binding price ceiling causes a shortage in the market, while a not binding price ceiling causes a surplus in the market. b. A binding price ceiling causes a surplus in the market, while a not binding price ceiling causes a shortage in the market. c. A binding price ceiling causes a shortage in the market, while a not binding price ceiling does not affect market behavior. d. A binding price ceiling causes a surplus in the market, while a not binding price ceiling does not affect market behavior.