Using the information in Figure 3, answer questions 7–11: 7. What is the lowest

Question

Using the information in Figure 3, answer questions 7–11:

7.                  What is the lowest price the firm would accept in the short run?

8.         What is the lowest price the firm would accept in the long run?

9.         On Figure 3, label the shut-down and break-even points.

10.       On Figure 3, label the short-run and long-run supply curves.

11.       Fill in Table 1.

Table 1

If price      What would the firm do in the Output in the

were          (a) short run?     (b) long run?    short run

$16                                                                                         

12                                                                                         

10                                                                                         

    8   

Explanation / Answer

7) the lowest price at which the firm can operate in the short run is $9. At the cost $9 the firm can get at least their variable cost out. Below $9 they will reach a shutdown point.

8) The lowest price at which the firm can operate in the long run is $11. At this cost, the firm will only be breaking even that means no loss and no profit as it happens in the long run.

9) Shutdown point is where the MC curve meets the AVC curve. The quantity output is 50 and the cost inured will be 9.

10) Break-even point is the point where the firm is not making any profit or loss. The point where the MC curve and ATC curve meets is the break-even point. The cost at the point is 11 and output 60.

11) The marginal cost curve (MC curve) above the variable cost act as the short run supply curve. The MC curve represents those points where the company will be producing an extra unit at the given cost.  

And the same Marginal cost above the interaction point with ATC curve represents the Long run supply curve. That is the point where the firm will be ready to supply in the long run.

12) IF the price was $16. The firm will be operating in the short run and in the long run as well. The output will be 74.

If the price is $12 the firm will be operating in the short run as well as long run. The output will be 64.

If the price is $10 the firm will the firm will operate in the short run but may not operate in the long run.

if the prices are $8 the firm will stop operating in the short run but may operate in the long run.

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