Question

The next 5 qustions ivolve the following Figure, which describes a Sr i a perfectly competitive industry ATC 10 12 6. Whod in thin firm's sbort-rn profn (A) 436 (C) 430 (D) -435 T. A wat quastity (g) the fins tdow pai (A) Whn e - ( Whes T (C)Whe 12 (D) Crt be detemind s. What will this fira's shot-rdciicn be (A) To slat dow (B) Te n open is iniet bt (A)d B (C) (D) All of the . What bapps in the kng-r (A) Fi e, caasng prices to go dowa ( Firexin, cang prio to go pe (C) Fem mte, coming is to e (D) Fi e, caing prices to go dows 10. In the long-run, what will the equilibrium be? (A) p 10, q 7 (B) p5, q 12 (C) ' 8, q = 7 (D) p 8, q 12

Answer 1

6. Option D
The firm's profit maximizing output is defined with the point where P = MC.
That is, profit maximizing output is 7 units.
Profit = (P - ATC)*Q
= (5 - 10)*7
= -5*7
= - $35

7. Option D
Shut down cannot be determined since AVC curve is not defined in the above diagram.

8. Option C
Since AVC curve is not defined, it may be indifferent between A and B. That is, it may shut down or remain open.

9. Option B
In the long run, the firms exit due to losses. As they leave the market, the supply curve shifts to the left and hence cause the prices to go up.

10. Option D
In long run, the firms earn no profit and hence p*=8 and q* = 12 is the long run equilibrium as the price equals average total cost at this point.