Question

Use the following graph to answer the next question. MC ATC AVC Costs and Revenues 1.25 1.05 .90 .80 .65 .60 o 15 20 35 Quantity The graph shows the cost curves for a perfectly competitive firm. If the market price of the product is $1.25 per unit, then the firm will earn how much profit per unit in the short run? O $.65 O $1.25 O $.45 O $.60

Answer 1

Ans. = (Option C) $ 0.45

In Perfectly Competitive Market, AR = PRICE = MR = MC at Equilibrium.

So, Total Revenue would be, If given Price is $1.25 per unit then this becomes our Revenue Per Unit.

Total Cost would be equal to the point where MR and MC equals and line is drawn till ATC, that Corresponding Price of ATC Curve would be Cost Per Unit.

Profit would be Equal to:

= Total Revenue - Total Costs
= 1.25 - 0.80
= $0.45

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