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Above figure shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. At price P2, the firm would Group of answer choices break even.

Above figure shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. At price P2, the firm would Group of answer choices break even.

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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Above figure shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.

At price P2, the firm would

Group of answer choices
break even.
lose an amount more than fixed cost.
lose an amount equal to its fixed cost.
lose an amount less than fixed cost.
The diagram presented is a classic economic graph illustrating the interplay between various cost curves and price levels in a competitive market. Here’s a detailed breakdown: ### Axes: - **Vertical Axis (Price and Cost):** This axis represents the price levels and costs. - **Horizontal Axis (Quantity):** This axis indicates the quantity of goods produced or sold. ### Curves: 1. **MC (Marginal Cost):** This curve is upward-sloping, representing the cost of producing one more unit of a good. 2. **ATC (Average Total Cost):** A U-shaped curve that shows the average total cost per unit at different levels of production. 3. **AVC (Average Variable Cost):** Another upward-sloping curve showing the cost of variable inputs per unit. ### Price Levels: - **\( P_1, P_2, P_3, P_4 \):** These horizontal lines represent different price levels in the market. ### Points: - **Point a:** Where the MC curve intersects \( P_1 \). - **Point b:** Intersection of MC and \( P_2 \). - **Point c:** Intersection of MC and \( P_2 \), also near the AVC curve. - **Point d:** Intersection of MC and \( P_3 \). - **Point e:** Intersection of MC with \( P_4 \). - **Point f:** Intersection of ATC and \( P_4 \). - **Point g:** Intersection of AVC and \( P_4 \). ### Quantities: - **\( Q_1, Q_2, Q_3, Q_4, Q_5, Q_6 \):** These vertical dashed lines mark the corresponding quantities at different intersections of the curves and horizontal price lines. ### Analysis: This graph can be used to demonstrate various concepts such as: - **Break-even Point:** When price equals ATC, indicating no profit or loss. - **Profit Maximization:** Often occurs where MR (Marginal Revenue) equals MC, which can be extrapolated from curves and price lines. - **Shutdown Point:** When price is below AVC, indicating it would be better to cease production rather than continue operating at a loss. This graph is a fundamental tool in understanding market dynamics, cost structures, and firm behavior in economics.
Transcribed Image Text:The diagram presented is a classic economic graph illustrating the interplay between various cost curves and price levels in a competitive market. Here’s a detailed breakdown: ### Axes: - **Vertical Axis (Price and Cost):** This axis represents the price levels and costs. - **Horizontal Axis (Quantity):** This axis indicates the quantity of goods produced or sold. ### Curves: 1. **MC (Marginal Cost):** This curve is upward-sloping, representing the cost of producing one more unit of a good. 2. **ATC (Average Total Cost):** A U-shaped curve that shows the average total cost per unit at different levels of production. 3. **AVC (Average Variable Cost):** Another upward-sloping curve showing the cost of variable inputs per unit. ### Price Levels: - **\( P_1, P_2, P_3, P_4 \):** These horizontal lines represent different price levels in the market. ### Points: - **Point a:** Where the MC curve intersects \( P_1 \). - **Point b:** Intersection of MC and \( P_2 \). - **Point c:** Intersection of MC and \( P_2 \), also near the AVC curve. - **Point d:** Intersection of MC and \( P_3 \). - **Point e:** Intersection of MC with \( P_4 \). - **Point f:** Intersection of ATC and \( P_4 \). - **Point g:** Intersection of AVC and \( P_4 \). ### Quantities: - **\( Q_1, Q_2, Q_3, Q_4, Q_5, Q_6 \):** These vertical dashed lines mark the corresponding quantities at different intersections of the curves and horizontal price lines. ### Analysis: This graph can be used to demonstrate various concepts such as: - **Break-even Point:** When price equals ATC, indicating no profit or loss. - **Profit Maximization:** Often occurs where MR (Marginal Revenue) equals MC, which can be extrapolated from curves and price lines. - **Shutdown Point:** When price is below AVC, indicating it would be better to cease production rather than continue operating at a loss. This graph is a fundamental tool in understanding market dynamics, cost structures, and firm behavior in economics.
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