b. suppose the average total cost at the output level chosen in part a is $12, h
ID: 1174107 • Letter: B
Question
b. suppose the average total cost at the output level chosen in part a is $12, how much is the firms economic profit or loss?c. at what price would you recommend that this firm shuts down?
d. what will the long run equilibrium price be?
e. how many units will the representative firm sell at the equilibrium price?
f. in the long run how many firms are now in this industry? Entire Market Single Representative Firm S per unit Price Supply-A ATC SupplyB SupplyC $15 $10 $5 Consider Demand Oty 250 300 400 e0 25 3035 the graphs above. The one on the left represents a perfiectly coempetitive market, the other represents a typical firm in that sells its output in that market Assume that all firms in this industry have identical cost structure Part A: Short run analysis (5 points) Suppose in this market the short-run equilibrium price is $15 Ia. What is the profit maximizing output level that this firm should produce and sapply 0 point)
Explanation / Answer
a) the firm's profit maximising level of output is at P=MC. At P=15=MC output of firm is 35.
b) profit= (P-ATC)*Q = (15-12)35= 105
c) the firm should down when MC=AVC. So at P= 5 the firm should shut down.
d) at long run equilibrium price, P=ATC
It happens at P= /10
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