D1 MC D2 ATC 75 AVC 40 30 12 2750 3250 20 80 110 130 1. If the current market de
ID: 1107812 • Letter: D
Question
D1 MC D2 ATC 75 AVC 40 30 12 2750 3250 20 80 110 130 1. If the current market demand is D1 then price will equal Id = dollars The individual firm's demand curve will be at a price of dollars. Average revenue will be equal to dollars. Marginal revenue will be equal to output. Its total revenue will equal dollars. In the long run, the number of firms in the market increase/ decrease shifting the supply curve dollars. The typical firm will produce units of dollars. The firm will earn a profit /suffer a loss of to the right / left, causing price to increase/ decrease and profit to increase/ decrease.Explanation / Answer
(1)
If market demand is D1, Price is 75 (Corresponding to intersection of D1 & S).
Individual firm's demand curve will be Horizontal at a price of 75 dollars.
Average revenue will be equal to 75 dollars (Since Average revenue = Price).
Marginal revenue will be equal to 75 dollars (Since for a price taker firm, Marginal revenue = Price).
Typical firm will produce 130 units of output (Where P intersects MC).
Total revenue will be 9,750 dollars (Revenue = Price x Quantity = 75 x 130).
Firm will earn Profit of 1,300 dollars (When Q = 130, ATC = 65 & Profit = Q x (P - ATC) = 130 x (75 - 65) = 130 x 10).
In long run, number of firms will Increase (new entry attracted by positive short run profit),shifting supply curve to Right, causing price to Decrease and profit to Decrease.
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