Referring to the graph below. a. The pro?t-maximizing output level equals ____ i
ID: 1195644 • Letter: R
Question
Referring to the graph below.
a. The pro?t-maximizing output level equals ____ if the prevailing market price is $40. The total revenue generated by this price-taking company at this price is _____. The cost of producing at pro?t-maximizing output level is ______. This company is making ______ pro?ts at the price of $40. The break-even price for the company is ______. When the price is below ________, the ?rm will shut-down its business and quit the market.
b. Draw the short-run supply curve in the graph.
Duilar S per unit $60-___-__-____ MC 56 52 MR ATC 36 28 24- AVC 100 150 200 250Explanation / Answer
a. Profit maximising output level is 200 (profit maxi. output level is attained where MR=MC).
b. Total revenue is $8000 (total revenue is price times quantity, 40*200 = 8000).
c. Cost of producing 200 units is $4800. (corresponding point of 200 units on average total cost curve gives $24 as the average unit cost. total cost is average total cost times the output).
c. Profits = total revenue - total cost
Profit = 8000-4800 = $3200.
d. Break even price is setting up of price where the firm earns zero profits. When MR=MC condition is set, the price set is above the ATC, which give rise to positive economic profits. In order to have zero economic profit, price set should be at the intersection point of MC and ATC curve. According to the graph, this point is at $20 price and 150 units of output.
e. Shut down point is where the price does not recover the fixed cost of the firm, but earns enough to make expenses for variable costs. If the firm is not able to earn to recover its variable cost, then the firm would go out of business and shut down. In this case, the minimum price required by the firm to stay in business is $12, which is the minimum point on AVC.
Short run supply curve would be an upward sloping curve from left to right. This is because, higher price incentivise producers to produce and sell more units.
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