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c. Review the definition of allocative efficiency in Chapter 12D, Section 12.6 D. If Fernando produced at the allocatively efficie

c. Review the definition of allocative efficiency in Chapter 12D, Section 12.6 D. If Fernando produced at the allocatively efficie

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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c. Review the definition of allocative efficiency in Chapter 12, Section 12.6. If Fernando produced at the allocatively efficient level of output, what quantity would he produce?
Transcribed Image Text:c. Review the definition of allocative efficiency in Chapter 12, Section 12.6. If Fernando produced at the allocatively efficient level of output, what quantity would he produce?
The graph illustrates the market situation for Fernando, who has a monopoly on selling baseball caps at a local minor league stadium. Several curves represent different economic concepts: 1. **Demand Curve (D)**: The blue downward-sloping line indicates the demand for baseball caps. As the price decreases, the quantity demanded increases. 2. **Marginal Cost (MC)**: The maroon upward-sloping line shows the marginal cost, which is the cost of producing one more unit of a good. 3. **Average Total Cost (ATC)**: The orange curve depicts the average total cost per unit, which includes both fixed and variable costs. 4. **Average Variable Cost (AVC)**: The yellow curve represents the average variable cost, which includes costs that change with the level of output. 5. **Marginal Revenue (MR)**: The light blue downward-sloping line represents marginal revenue, indicating how much additional revenue is generated from selling one more unit of a product. The intersection points on the graph provide crucial information: - Where MC intersects MR suggests the profit-maximizing quantity. - The point where D intersects MR can indicate pricing decisions. - Comparing the ATC and price at the quantity level of MR=MC can show whether there is profit or loss. The vertical axis measures "Price and cost per unit" ranging from $10 to $20, while the horizontal axis measures "Quantity" from 0 to 25 units. Each curve and line helps to understand pricing and output decisions in a monopolistic market situation.
Transcribed Image Text:The graph illustrates the market situation for Fernando, who has a monopoly on selling baseball caps at a local minor league stadium. Several curves represent different economic concepts: 1. **Demand Curve (D)**: The blue downward-sloping line indicates the demand for baseball caps. As the price decreases, the quantity demanded increases. 2. **Marginal Cost (MC)**: The maroon upward-sloping line shows the marginal cost, which is the cost of producing one more unit of a good. 3. **Average Total Cost (ATC)**: The orange curve depicts the average total cost per unit, which includes both fixed and variable costs. 4. **Average Variable Cost (AVC)**: The yellow curve represents the average variable cost, which includes costs that change with the level of output. 5. **Marginal Revenue (MR)**: The light blue downward-sloping line represents marginal revenue, indicating how much additional revenue is generated from selling one more unit of a product. The intersection points on the graph provide crucial information: - Where MC intersects MR suggests the profit-maximizing quantity. - The point where D intersects MR can indicate pricing decisions. - Comparing the ATC and price at the quantity level of MR=MC can show whether there is profit or loss. The vertical axis measures "Price and cost per unit" ranging from $10 to $20, while the horizontal axis measures "Quantity" from 0 to 25 units. Each curve and line helps to understand pricing and output decisions in a monopolistic market situation.
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