Astro Computers makes onboard vehicle control computers for the Tesla. The production department has gathered data on the costs of several yearly production levels and asked you to help interpret these for them. 1. The data for Astro appear in the graph below. The COO asks what production level he should set for the coming year, if Astro operates in a perfectly competitive market. (the graph is in the picture)2. Is Astro earning “excess profit” (explain what that means if you think they are) and how other firms will react when they see Astro’s performance?3. The production department has also done a bit of research on other firms operating in the market for onboard control computers. The graph below shows the relative sizes and cost structures of the four largest firms in the market (Data, Astro, Consolidated and BCS); these four firms combined account for 35% of business in the market for onboard control computers. There are over fifteen firms that supply onboard control computers to Tesla and other auto makers. They are standard and uncomplicated to build.The COO asks you whether you expect the price per unit to remain at the same level or change (rise or fall?). What will cause any adjustments you identify?(picture 1 is for question number 1, picture 2 is for question number 2, the questions are also included in the pictures) ### Text Transcription and Graph Explanation#### Text TranscriptionThe production department has also done a bit of research on other firms operating in the market for onboard control computers. The graph below shows the relative sizes and cost structures of the four largest firms in the market (Data, Astro, Consolidated, and BCS); these four firms combined account for 35% of business in the market for onboard control computers. There are over fifteen firms that supply onboard control computers to Tesla and other automakers. They are standard and uncomplicated to build.The COO asks you whether you expect the price per unit to remain at the same level or change (rise or fall?). What will cause any adjustments you identify?#### Graph Explanation**Title:** Industry Cost Structure (Onboard Control Computers)- **Axes:** - **Vertical Axis:** Price (or Cost) per Unit - **Horizontal Axis:** Quantity (over time)- **Curves:** - Four distinct U-shaped curves are depicted, representing the Average Total Cost (ATC) and Marginal Cost (MC) for each of the four major firms: - **Data Computer** - **Astro Computer** - **Consolidated Computer** - **BCS Computer**- **Lines and Markings:** - A horizontal green line across the curves indicates the current "Price in the Market." - An orange-ish line labeled "Average Total Cost per Unit 'Industry as a Whole'" (LRATC) is above the green line, suggesting the industry's overall cost structure. - Each U-shaped curve is labeled with "ATC" and "MC" to denote which part of the firm's cost structure they represent.- **Interpretation:** - The curves illustrate how the costs of production vary with quantity for each company, with the lowest point on each ATC curve indicating the most efficient scale of production. - The comparison of the market price line with individual cost curves hints at which companies might currently be making a profit or are more cost-efficient at certain production scales.The graph aids in assessing each firm's competitive position and estimating potential market shifts based on cost efficiencies. It can be used to predict whether the market price will increase or decrease, as well as how firms might adjust their production strategies in response to market conditions. **Graph Explanation for Educational Website****Title**: Astro Computer Production Data**Description**:The graph presented displays the cost structure for Astro Computers within a perfectly competitive market, focusing on the appropriate production level for the upcoming year. The graphs and curves illustrate critical economic concepts:1. **Axes**: - The vertical axis represents **Price (or Cost) Per Unit**. - The horizontal axis represents **Quantity (units per year)**.2. **Curves**: - **MC (Marginal Cost)**: This is shown as a red curve, which initially decreases, reaches a minimum point, and then rises steeply. The MC curve intersects both the Average Total Cost (ATC) and Average Variable Cost (AVC). - **ATC (Average Total Cost)**: This is depicted as a black U-shaped curve above the AVC curve. It represents the total cost per unit of output. The ATC curve is important to determine the break-even point. - **AVC (Average Variable Cost)**: This is shown as a lower black U-shaped curve. It represents the variable cost per unit of output and is always below the ATC curve.3. **Market Price**: - Represented by a **horizontal green line**, indicating the price at which Astro Computers can sell its output in a perfectly competitive market.4. **Key Intersections**: - The **MC curve intersects the ATC curve** at its lowest point, denoting the most efficient scale of production. - The **MC curve intersects the market price line** at the quantity of units optimal for production, ensuring that the production covers all costs and achieves maximum profit. The suggested production levels are noted by dashed vertical lines at quantities of **10,000**, **12,000**, and **15,000** units per year.**Conclusion**:The intersection point of the marginal cost curve (MC) with the market price line suggests that Astro should aim for a production level where the MC equals the market price to maximize profit while efficiently covering costs.

a) If the Astro Computers operates in a perfectly competitive market, the market price should be equal to marginal cost (MC) or when the MC curve intersects the market price line. In the given diagram, we can see P = MC at quantity 13,000 where green line and red line intersect each other, so the Astro Computers produces 13,000 units per year.b) The excess profit is also referred to the super normal which occurs when at a given quantity the price per unit is greater than the average cost per unit. The Astro Computers is producing excess profit as at quantity 13,000 units per year, the market price line lies above the ATC curve. The other firms will start to enter the market when they see Astro performance in order to earn an excess profit or supernormal profit.c) We expect the price in the market to be rise. This will happen because the Astro’ excess profit will encourage other firms to enter the market and this will continue until the price in the market become equal to the long-run average cost (LRAC). The reason is that the new entry of firms will increase supply in the market which will shift the market supply curve to the right and decreases the market price.