6. 132pts] Use the graph of the wheat market to answer parts a-d. Price & Cost M
ID: 2441108 • Letter: 6
Question
6. 132pts] Use the graph of the wheat market to answer parts a-d. Price & Cost MC ATC Notes: At profitmax quantity of 1,000 AVC MR = 30 ATC-20 AVC-15 AVC Min-13 30 MR 1 20 15 Q wheat 1000 What type of market structure is illustrated in the above graph? (1pt) What are the characteristics of this structure that are contributing to the flat demand curve? Explain. (4pts) When profit is maximized, what is the total revenue, total cost, variable cost, and profit (4pts) How does the firm adjust output when MR> MC? Explain why they do that? (4pts) a. b. c. d.Explanation / Answer
Answer
a)
The perfectly competitive market firm is illustrated in the graph
because the marginal revenue curve is horizontal, it is only in the perfectly competitive market
b)
Characteristic of perfect competition which contributes to the flat demand curve
1) many firms and free entry
2) Identical product
3) price taker
4) perfect information
The market consumer has perfect information and there are n number of identical product firms so the firm does not have power over the price that means an individual firm can not influence demand if that is done then the firm will face loss.
because if the price is increased then the consumer will do to other firms (which means the demand is perfectly elastic, increase in price there is no demand ) that mean a flat demand curve
c)
Profit is maximum at MR=MC
TR=P*Q=30*100=3000
TC=ATC*Q=20*100=2000
VC=AVC*Q=15*100=1500
Profit=TR-TC=3000-2000=1000
d)
When MR>MC then firm will produce more so the MR=MC because MR slopes downward(decreasing) and MC slopes upward(increasing) so it will intersect
Why they do that?
because the MR=MC is profit maximizing point for business
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