Question

42 MC ATC 32 AVC 24 18 14 I0 AFC Quantity 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7 7.5 8 8.5 9 9.5 10

Answer 1

Question 1

(a)

In short-run, in order to maximize profit, a firm produces that level of output corresponding to which MR equals MC.

The given figure shows that MR curve intersects MC corresponding to the output of 7 units.

So,

The level of output that this firm should produce in the short-run is 7 units.

(b)

A perfectly competitive firm is a price taker and accepts the price that is provided by the market.

This is the price corresponding to which MR curve is horizontal.

MR curve is horizontal to the price of $28 per unit.

So,

This firm should charge $28 per unit in the short-run.

(c)

ATC corresponding to 7 units is $32.

So,

TC = ATC * Output produced

TC = $32 * 7

TC = $224

Thus,

The firm's total cost at this level of output is $224.

(d)

AVC corresponding to 7 units is $14.

So,

TVC = AVC * Output produced

TVC = $14 * 7

TVC = $98

Thus,

The firm's total variable cost at this level of output is $98.