Homework Answers
14.Ans:
Explanation:
Under perfect competition , the profit maximization condition is where price equals marginal cost ( P =MC).
In the above figure , q* is the profit maximization level of output , where P = MC.
Price is $4 . At profit maximization level of output , ATC is greater than the price.
When ATC > Price , then there will be negative profit or loss.
Total loss is represented by the area BCEA.
15.Ans: NO, the firm should not continue in the short run becuase AVC is greater than the market price ( $3). Shut down point occurs where price equals average variable cost ( P = AVC or P < AVC). In the above figure , it is cleared that AVC is greater than P. Firm is not even able to recover variable cost . So the firm will shut down.
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Please answer both of the following questions:
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curves.
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2. What is their profit maximizing level of output and
profit?
3. If the market clearing price drops to $10.00 per unit,
should they continue to produce in the short run if they wish to
maximize their economic profits (or minimize its economic losses)?
Explain.
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Please answer both of the following questions:
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Sonya and Leah operate a small firm in a perfectly competitive
market, the diagram illustrates its MC, ATC, AVC and MR
curves.
1. What is their current average revenue per unit?
2. What is their profit maximizing level of output and
profit?
3. If the market clearing price drops to $10.00 per unit,
should they continue to produce in the short run if they wish to
maximize their economic profits (or minimize its economic losses)?
Explain.
4. What is their...
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