Question

Price and cost (dollars per toy) The graph shows the short-run cost curves of a toy producer. Assume the toy producer is in a perfectly competitive market. If the market price of a toy is $11, then O A. The firm will break even. OB. The firm will lose an amount greater than its fixed costs. O C . The firm will lose an amount equal to its fixed costs. O D. The firm will lose an amount less than its fixed costs. ATC If the market price of a toy is $15, then O A. The firm will lose an amount greater than its fixed costs. O B. The firm will break even. OC. The firm will lose an amount equal to its fixed costs. OD. The firm will lose an amount less than its fixed costs. 0 500 2500 1000 1500 2000 Quantity (toys per week)

Answer 1

1) Setting P=MC for profit maximization

When the price is 11, the firm will shut down as P<AVC and will lose an amount equal to its fixed cost

option (C)

When the price is 15, the firm will break even as P=ATC

option (B)

2) Setting MR=MC, the firm will minimize its losses by producing Qy units at P1 prices

option(C)