Below is a graph of price and cost curves for a perfectly competitive firm that explains the profit/loss states of three different price levels. a. At what quantity and price the firm will maximise its profit and calculate the total revenue, cost and profit. b. At what quantity and price the firm will minimise its loss and calculate the total revenue, cost and minimum loss. c. At what price the firm will decide to shut down firm and justify your answer
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a. At what quantity and price the firm will maximise its profit and calculate the total revenue, cost and profit.
b. At what quantity and price the firm will minimise its loss and calculate the total revenue, cost and minimum loss.
c. At what price the firm will decide to shut down firm and justify your answer.
a. The firm will maximize its profit by producing at P1 = MC
Price is 30 and quantity is 80
Total revenue = PQ = 30*80= 2400
ATC at 80 units is 20
Total cost = ATC*Q = 20*80= 1600
Profit = Total revenue - total cost
= 2400 - 1600= 800
b. The firm will minimize the losses by producing at P2 = MC
Price is 15 and quantity is 60
Total revenue = 15*60= 900
ATC at 60 units is 16
Cost= 16*60= 960
loss= 960 - 900 = 60
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