13 2.) Suppose that a firm in a competitive market has the following cost curves: Price 12 11 10 9 8 7 6.36. 5 4.5 4+ 3 2 1. 1 2 3 MC ATC AVC 4 5 6 7 8 9 10 11 Quantity a.) What price should the firm shut down below? b.) What's the range of prices where the firm would earn negative profit in the short run? c.) Below what price would the firm exit? d.) What range of prices would provide the firm positive profits? e.) At what quantity is ATC minimized? f.) What is the long run equilibrium price? What does each firm earn at that price? If the price is $5 in the short run, what happens in the long run to get the price back to the long-run equilibrium?

13 2.) Suppose that a firm in a competitive market has the following cost curves: Price 12 11 10 9 8 7 6.36. 5 4.5 4+ 3 2 1. 1 2 3 MC ATC AVC 4 5 6 7 8 9 10 11 Quantity a.) What price should the firm shut down below? b.) What's the range of prices where the firm would earn negative profit in the short run? c.) Below what price would the firm exit? d.) What range of prices would provide the firm positive profits? e.) At what quantity is ATC minimized? f.) What is the long run equilibrium price? What does each firm earn at that price? If the price is $5 in the short run, what happens in the long run to get the price back to the long-run equilibrium?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

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2.) Suppose that a firm in a competitive market has the following cost curves:
↑ Price
8
7.
6.36
5.
4.5
4+
3
2+
1
1 2 3 4
MC
J
ATC
AVC
5
5 6 7 8 9 10 11 Quantity
a.) What price should the firm shut down below?
b.) What's the range of prices where the firm would earn negative profit in the short run?
c.) Below what price would the firm exit?
d.) What range of prices would provide the firm positive profits?
e.) At what quantity is ATC minimized?
f.) What is the long run equilibrium price? What does each firm earn at that price? If the price is $5 in the
short run, what happens in the long run to get the price back to the long-run equilibrium?

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Step 3: Negative profit:

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Step 4: Firm's exit price:

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Step 5: Positive profit:

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Step 6: Minimum ATC:

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