The Lotsa Pasta Company sells pasta in a perfectly competitive market at a price of $2 per pound. Its marginal cost, average variable cost, and average total cost curves in the short run can be seen below:**Graph Explanation:**The graph displays several key economic curves for the Lotsa Pasta Company:- **Price and Demand (d = MR):** Represented by a horizontal line at the price of $2, indicating that the firm is a price taker in a perfectly competitive market.- **Marginal Cost (MC):** A curve that initially decreases, reaches a minimum point, and then increases. This curve intersects the demand curve, indicating the profit-maximizing level of output (q*).- **Average Total Cost (ATC):** A curve typically U-shaped, which indicates the average cost of producing each unit including fixed and variable costs.- **Average Variable Cost (AVC):** A U-shaped curve lying below the ATC, representing the variable costs on average for each unit.**Instruction:**Find the profit-maximizing level of output and mark it $ q^* $. Shade in the area of profit earned by the firm. Is it positive or negative?To determine the profit-maximizing level of output ($ q^* $), locate where the MC curve intersects the price line ($ d = MR $). The difference between the price ($2) and the ATC at $ q^* $ represents the per-unit profit. If this area is above the ATC, the profit is positive; otherwise, it is negative.

Equilibrium is where P = MC P is the price MC is the marginal cost.

1. The Lotsa Pasta Company sells pasta in a perfectly competitive market at a price of $2 per pound. Its marginal cost, average variable cost, and average total cost curves in the short run can be seen below: price 2 MC ATC AVC d=MR q Find the profit-maximizing level of output and mark it q*. Shade in the area of profit earned by the firm. Is it positive or negative?

1. The Lotsa Pasta Company sells pasta in a perfectly competitive market at a price of $2 per pound. Its marginal cost, average variable cost, and average total cost curves in the short run can be seen below: price 2 MC ATC AVC d=MR q Find the profit-maximizing level of output and mark it q*. Shade in the area of profit earned by the firm. Is it positive or negative?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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