The above figure shows a perfectly competitive firm. If the market price is $15,

Question

The above figure shows a perfectly competitive firm. If the market price is $15, the firm is making an economic profit. might shut down but more information is needed about the AVC. will immediately shut down. is incurring an economic loss. is making zero economic profit. The above figure shows a perfectly competitive firm. If the market price is $5, the firm will not shut down. might shut down but more information is needed about the AVC. will immediately shut down. is making zero economic profit. is making an economic profit.

Explanation / Answer

27. Option A is correct.

In competitive equilibrium, P = MC. So when P = $15, as per the equilibrium condition, P = MC, output is = 35 units. Total revenue = price*output = 35*15 = $525

The corresponding point on the ATC (downwards), is $11. ATC = TC/output,

TC = 11*35 = $385.

Profit = TR - TC.

Profit = 525 - 385 = $140.

28. Option C is correct.

This is because in order to operate, the firm needs to cover its variable costs. If the variable costs are not covered by the revenue earned, the firm woudl shut down.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.