The graph below summarizes the demand and costs for a firm that operates in a pe
ID: 1110396 • Letter: T
Question
The graph below summarizes the demand and costs for a firm that operates in a perfectly competitive market. Instruction: Use the nearest whole numbers on the graph when calculating numerical responses below 481 MC ATC 40 36 32 28 24 20 16 12 AVC AFC 0 12 3 5 6 789 011 Quantity a. What level of output should this firm produce in the short run? units b. What price should this firm charge in the short run? c. What is the firm's total cost at this level of output? d. What is the firm's total variable cost at this level of output?Explanation / Answer
A firm in perfectly competitive market is a price taker. It accepts price as provided by the market.
The demand curve of a perfectly competitive firm is a horizontal straight line at the given price.
In given figure, demand curve is horizontal straight line at $28.
So, price is $28.
A perfectly competitive firm maximizes profit when it produce that level of output at which price equals marginal cost.
Price line (as indicated by demand curve) intersects MC curve corresponding to output of 7 units.
Thus,
(a) This firm should produce 7 units in the short-run.
(b) This firm should charge $28 per unit in the short-run.
(c) The given figure shows that ATC corresponding to 7 units of output is $32.
Total cost = ATC * Level of output = $32 * 7 = $224
The firm's total cost at this level of output is $224.
(d) The given figure shows that AVC corresponding to 7 units of output is $18.
Total variable cost = AVC * Level of output = $14 * 7 = $98
The firm's total variable cost at this level of output is $98.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.