Question

Will you please provide a detailed thought process to coming to the answer. Thank you!

In-Class #6 Below is the picture of 1 of 30 identical firms in a perfectly competitive market. Which of the following are true? I. At a price of $44, the firm is making positive economic profit II.A point (Q, P) on the market supply curve is (120, 12) III. If this profit maximizing firm is producing 41 units of output in the short run, then the price must be $123 1 Arc Firm MC •Only I is true Only III is true Only I and Il are true Only I and III are true IV.Only II and Ill are true. 4 15 41

Answer 1

only III is correct.

Explanation:

at price of $44, the firm is making economic loss. because at this price ATC curve is above the price. so firm is making economic loss at $44.

Supply curve in the short run is Marginal cost above the Average variable cost and in the long run, Marginal cost curve above the Average total cost cost curve. so here At $12 firms will not supply any quantity as it is below Average variable cost. so, at $12 there is no market supply.

in the perfect competition firm Price=MR and firm choose its quantity where profit is maximized and at MR=MC firm maximizes its profit. so firm must charge $123 for 41 quantity to maximize profit as MR and MC are equals at this quantity.