Question

Please indicate the correct answer and explain why it's right. Thank you

Rabbit farming is a perfectly competitive industry and all rabbit farms have the same cost curves. When the market price is $31 a rabbit, each farm maximizes profit by producing 1,000 rabbits a week. At this output, average total cost is $30 and average variable cost is $18 a rabbit. Minimum average variable cost is $14 a rabbit. Two points on the rabbit farm's supply curve are 1,000 rabbits supplied ateach and 0 rabbits supplied at ech. OA. $31; $18 B. $18, $12 O C. $12; $31 O D. $31; $12 O E. $12; $18

Answer 1

Since a perfectly competitive firm supply curve is part of MC curve which is above the average variable cost curve.

Since the perfectly competitive firm profit-maximizing condition are

P=MC

Since profit maximizing quantity is 1000 units and price is $31. It means MC curve cuts price curve at output level of 1,000 units.

It means 1,000 units will be supplied when price is $31.

Since supply curve of the perfectly competitive firm is part of MC curve which is above minimum of AVC curve. It means if P=Minimum of AVC= MC, then this is shut-down point or price.

Hence if price is below shut down price, then firm will supply 0 unit of output level.

The shut-down price is $14 because minimum AVC value is $14.

Since the shut-down price is $14 and so if the price is $12, then firm will supply 0 units of rabbits.

hence it can be said that two point on the rabbit's farm supply curve are 1,000 rabbits supplied at $31 each and 0 rabbits supplied at $12 each.

Hence option D is the correct answer.

option D; $31, $12