Question

Question 1 (3 points) MC ATC AVC QIQ2 03 04 05 Quant Answer the following questions with respect to the graph above: 1. The profit-maximizing quantity when price = P4 is at 2. Shade the region that represents total revenue when price = P4 3. The firm will decide to shut-down in the short-run, if the price fell below 4. The firm will decide to exit in the long-run, if the price fell below 5. The firm will earn zero-profits if the price is at 6. The profit-maximizing quantity when price = P1 is at -

Answer 1

Profit maximizing condition is P=MC.

1. The profit maximizing quantity when price =P4 is at Q4.

2. The region that represents total revenue when price = P4 is shown below :

ДА (С perenie LAVE о 00, 0, 0,

3. The firm will decide to shut down in the short run , if the price fell below minimum AVC i.e when price fell below P2.

4. The firm will decide to exit in the long-run , if the price fell below minimum ATC , i.e when price fell below P3.

5. The firm will earn zero economic profits if the price is at ATC i.e P3.

6. The profit maximizing quantity when price= P1 is at Q1 but here P< min AVC , so the firm will shut down in the short run and don't produce any output.