Question

SECTION NAME PRINT LAST NAME, FIRST NAME PERFECT COMPETITION Use the graph for a perfectly competitive firm to answer questions I through 10, Price (P) ATC $16 МC S13 AVC $10 $8 $6.50 0 60 100 Quantity (Q) If price $10, the profit-maximizing/loss-minimizing level of output (Q) is I) total revenue is equal to 2) S total cost is equal to 3) S and the firm has a loss equal to 4) S If this firm does not produce in the short run, it will have a loss equal to 5) S If price $6.50 and the firm produces 60 units of output, total revenue will be equal to , total cost will be equal to 7) S 6) S and the firm will experience a loss equal to 8) S If this firm does not produce in the short run, it will experience a loss equal to 9) S because it must pay its 10) costs. fixed/variable Chapter 11 Assignments 218

Answer 1

Profit maximizing condition under perfect competition is P=MC.

If P=$10 , the profit maximizing level of output is 100 units , total revenue is ($10)(100)= $1000, total cost is equal to (ATC)(Q)=$(13)(100)= $1300 and the firm has a loss equal to $(1300-1000)= $300. If this firm doesn't produce in the short run ,it will have a loss equal to 0.

If P=$6.50 and the firm produces 60 units of output , total revenue will be equal to $(6.50)(60)= $390, total cost will be equal to (ATC)(Q)= ($16)(60)= $960. and the firm will experience a loss equal to $(960-390) = $570. If this firm does not produce in the short run , it will experience a loss equal to $(AFC)(Q)= $500 [because we can see that when Q=100 , then ATC=13 and AVC=8 , which implies (ATC-AVC)(Q)=AFC(Q) =(13-8)(100)=$500 ] . Because it must pay its fixed costs.