Consider the figure to the right. Suppose that the price per unit corresponding
ID: 2440976 • Letter: C
Question
Consider the figure to the right. Suppose that the price per unit corresponding to the position of d1 is $6.00 per unit and that the quantity at point E1 is exactly 4 units per hour. Calculate total revenues, total costs, and economic profits at point E1 and explain why it is called the short-run break-even point ATC Total revenues equal $per hour, total costs equal $per hour and economic profits equal per hour. (Enter your responses rounded to two decimal places.) MC Point E1 is called the short-run break-even point because, at this point, the firm's accounting profits opportunity costs so that its economic profit is AVC ?| its relevant d1 Output (units per hour
Explanation / Answer
For a horizontal demand curve, profit is maximized at point E1 where demand curve intersects MC, with price $6, ATC of $6 and output of 4 units.
Total revenue = Price x Quantity = $6 x 4 = $24
Total cost = ATC x Quantity = $6 x 4 = $24
Economic profit = Total revenue - Total cost = $24 - $24 = 0
Point E1 is called break-even point because at this point, firm's accounting profits are equal to opportunity cost, so that economic profit is zero.
[Reason: Economic profit = Accounting profit - Opportunity cost, therefore when economic profit is 0, accounting profit equals opportunity cost]
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.