Question

UH Answer the following questions using the cost curves for the price-taking firm shown in the figure below. Is SMC Price and costs (dollars) TITTTTT ATC AVC LILLO 800 1.000 1.200 200 400 600 Quantity 1. If the price is $70 per unit of output, draw the marginal revenue curve and answer the following: a. How many units should be produced at this price? Explain why? b. Calculate: ATC, AVC, and AFC. c. Calculate the total cost of production at this level? d. What will be the profit that the firm makes at this level of output? 2. Let price fall to $40, draw the new marginal revenue curve and answer the following: a. How many units should be produced at this price? b. What will be the total revenue? C. Calculate the profit? 3. Below what price the firm should shut down and produce nothing? Explain why?!

Answer 1

100 SMC 80 E MR 70 ATC 60 AVC ATC 50 AVC= 40 40 20 = 1000 1,200 1,000 800 600 200 400 Quantity LJ (Sallala as pue apu

1). From Figure the Marginal Revenue curve will be a horizontal line at the Price level 70.

a) The units produced will be at MR = P = SMC. This is where MR = 70 line cuts SMC. This happens at Q = 1000. This is because in case firms are price takers, the marginal revenue (MR) and the Demand curve are coincident that is they are one and the same.

b) ATC at Q = 1000 = 50, the point on ATC at Q = 1000.

AVC is the point on AVC at Q = 1000 = 40.

AFC = ATC – Avc = 50 – 40 = 10

c) ATC = TC/Q

TC = ATC*Q = 50*1000 = 50,000

d) Profit = TR – TC

TR = P*Q = 70 * 1000 = 70,000

Profit = 70,000 – 50,000

Profit = 20,000

Please post each question separately.

Thanks you!