Q.1 The following graph shows a cost of a firm in a market. Price and Cost MC AT
ID: 1153752 • Letter: Q
Question
Q.1 The following graph shows a cost of a firm in a market. Price and Cost MC ATC $40.00 $34.00 29.00 Quantity (a) Based on the graph above, is the market perfectly competitive? Explain. (b) What is the current market price? (c) Calculate the total revenue. Calculate the total cost. (d) Draw the supply curve of the firm in long run. Mark the vertical axis. (e) Suppose wages increase, what happens to the MC and ATC? Will the firm produce more or produce less? 02 The following table shows the costs of a firm participating in a competitive market. ?¡Rì Quantity Total Reotal M ATC Cost $3 S5 S9 S13 50 $10 S15 -2 $25 $30 S27 S37 5. (a) Is the firm operating in short run or long run? Explain. (b) What is the market price? Calculate the maximized profit. (c) Find the minimum ATC. Hence what is the market priod such that the firm makes 0 profit? d) Find the minimum AVC. Give the range of the market price such that the firm makes loss but still PageExplanation / Answer
a) Yes it is perfectly competitive market
b) Current market price = 40
c)
Q
Price
TR
ATC
TC
40
40
1600
29
1160
80
40
3200
34
2720
d) The long run supply curve would be the MR curve which is the quantity supplied at price $40
e) With the increase in wages, the MC and ATC would increase which makes the firm to produce less
Q.2
Q
TR
TC
MC
ATC
AVC
Profit
0
0
3
-3
1
5
5
2
2.00
2.00
0
2
10
9
4
2.00
3.00
1
3
15
13
4
1.33
3.33
2
4
20
19
6
1.50
4.00
1
5
25
27
8
1.60
4.80
-2
6
30
37
10
1.67
5.67
-7
a) Since the firm is incurring loss at Q=6, it is operating in short run
b) The market price is $5 and the maximized profit is $2
c) The minimum ATC is 1.33. and the price is also 1.33 which makes the profit zero
d) The minimum AVC is 2 and the range of market price is 4 to 4.8 where the firm makes loss but still operates
Q
Price
TR
ATC
TC
40
40
1600
29
1160
80
40
3200
34
2720
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