Question

please include diagrams!!

Problem 2. Consider a firm producing in a perfectly competitive market. Represent each of the following situations diagramatically. In each case determine if the firm is producing at the profit maximising level. If it is producing optimally, determine the firm's profit or loss, and in the latter case, if it should shut down. If it isn't producing optimally, should it increase or decrease output? 2, P = $20, Q-12, MC = $20. AC = $22. AVC = $18. 3. P-$15, Q-30, MC-$15, AC-$20, AVC-$17 4. P= $15, Q 10, MC= $20. AC= $15. AVC= $10.

Answer 1

Answer:

Firms produce at profit maximizing level if P = mc But in this case P > mc. So firm is not producing at the profit maximizing level profit is (P - mc) 0 = (20 - 10) 8 = 10 times 8 = $80 So firm should increase output \r\n As P = mc So firm is producing at the profit maximizing level But here P < Ae but P > Ave as it recovers Ave so firm should not down its production P = 15 = mc So is producing at profit maximising level here P < Ave So firm should shut down its production. \r\n P notequalto mc So firm is not production at profit maximizing level In this case = (P - mc) = (15 - 20)10 = -$50 As it incurred loss. So firm should decrease output.