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1. Refer to the graph below of a perfectly competitive market. How many units will the firm choose to sell, and at what price? In the short term, what will be the total revenue, total cost, and total profit of the firm? If at some point in the future the market price fell below $6 (for example where Point A is) what would the firm do? Revenue and cost (dollars per unit) $20 11 10 6 O b 200 250 d 300 MC ATC AVC MR Quantity

1. Refer to the graph below of a perfectly competitive market. How many units will the firm choose to sell, and at what price? In the short term, what will be the total revenue, total cost, and total profit of the firm? If at some point in the future the market price fell below $6 (for example where Point A is) what would the firm do? Revenue and cost (dollars per unit) $20 11 10 6 O b 200 250 d 300 MC ATC AVC MR Quantity

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Refer to the graph of a perfectly competitive market. How many units will the firm choose to sell, and at what price? In the short term, what will be the total revenue, total cost, and total profit of the firm? If at some point in the future the market price fell below $6 (for example where Point A is) what would the firm do?  
### Transcription and Explanation for Educational Website Use #### Question 1. Refer to the graph below of a perfectly competitive market. How many units will the firm choose to sell, and at what price? In the short term, what will be the total revenue, total cost, and total profit of the firm? If at some point in the future the market price fell below $6 (for example where Point A is) what would the firm do? #### Graph Explanation The graph illustrates a scenario in a perfectly competitive market, showing how a firm decides the quantity to produce and sell based on different cost structures and market conditions. ##### Key Components of the Graph - **Axes:** - The vertical axis represents "Revenue and cost (dollars per unit)." - The horizontal axis indicates "Quantity." - **Curves and Lines:** - **MC (Marginal Cost):** This is the black curve that rises sharply as quantity increases. It represents the cost of producing one more unit. - **ATC (Average Total Cost):** This is the upper gray curve, U-shaped, indicating the average total cost per unit. - **AVC (Average Variable Cost):** The lower gray curve, also U-shaped, showing the average variable cost per unit. - **MR (Marginal Revenue):** A horizontal line at $20, reflecting the constant market price in perfect competition. ##### Points on the Graph - **Point a:** Located at the intersection of the AVC curve and $6 on the vertical axis, near 200 units, indicating a shutdown point. - **Point b:** Situated on the MC curve, slightly above the AVC curve between 200 and 250 units. - **Point c:** Lies on the ATC curve between Points b and d. - **Point d:** Occurs at the intersection of the MC curve and the MR line at a price of $20. #### Analyzing the Graph - **Optimal Quantity and Price:** - The firm will choose to produce and sell at Point d, where the MC curve intersects the MR line. This is the profit-maximizing quantity and reflects the prevailing market price of $20. - **Short-Term Financials:** - **Total Revenue (TR):** Calculated as Price x Quantity. At Point d, TR = $20 x Quantity at Point d. - **Total Cost (TC):** Determined by the AT
Transcribed Image Text:### Transcription and Explanation for Educational Website Use #### Question 1. Refer to the graph below of a perfectly competitive market. How many units will the firm choose to sell, and at what price? In the short term, what will be the total revenue, total cost, and total profit of the firm? If at some point in the future the market price fell below $6 (for example where Point A is) what would the firm do? #### Graph Explanation The graph illustrates a scenario in a perfectly competitive market, showing how a firm decides the quantity to produce and sell based on different cost structures and market conditions. ##### Key Components of the Graph - **Axes:** - The vertical axis represents "Revenue and cost (dollars per unit)." - The horizontal axis indicates "Quantity." - **Curves and Lines:** - **MC (Marginal Cost):** This is the black curve that rises sharply as quantity increases. It represents the cost of producing one more unit. - **ATC (Average Total Cost):** This is the upper gray curve, U-shaped, indicating the average total cost per unit. - **AVC (Average Variable Cost):** The lower gray curve, also U-shaped, showing the average variable cost per unit. - **MR (Marginal Revenue):** A horizontal line at $20, reflecting the constant market price in perfect competition. ##### Points on the Graph - **Point a:** Located at the intersection of the AVC curve and $6 on the vertical axis, near 200 units, indicating a shutdown point. - **Point b:** Situated on the MC curve, slightly above the AVC curve between 200 and 250 units. - **Point c:** Lies on the ATC curve between Points b and d. - **Point d:** Occurs at the intersection of the MC curve and the MR line at a price of $20. #### Analyzing the Graph - **Optimal Quantity and Price:** - The firm will choose to produce and sell at Point d, where the MC curve intersects the MR line. This is the profit-maximizing quantity and reflects the prevailing market price of $20. - **Short-Term Financials:** - **Total Revenue (TR):** Calculated as Price x Quantity. At Point d, TR = $20 x Quantity at Point d. - **Total Cost (TC):** Determined by the AT
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