Damai Biru Sdn. Bhd. is a firm selling homogenous product in a competitive market. It has the following cost curves: Price 10 MC ΑΤ AVC P1 P2 P3 P4 1 + +> Quantity Figure Q2 : various cost curves in a competitive market (i) Calculate the amount of profit earned by the firm if the price is P2, which is RM4.5 per unit. (i) Analyse whether the firm should continue its operation or to shut down as the price falls to P4, which is RM2 per unit. (ii) In the long run, firms in competitive market achieve allocative efficiency and productive efficiency in their production. Explain what is meant by allocative efficiency and productive efficiency.

Damai Biru Sdn. Bhd. is a firm selling homogenous product in a competitive market. It has the following cost curves: Price 10 MC ΑΤ AVC P1 P2 P3 P4 1 + +> Quantity Figure Q2 : various cost curves in a competitive market (i) Calculate the amount of profit earned by the firm if the price is P2, which is RM4.5 per unit. (i) Analyse whether the firm should continue its operation or to shut down as the price falls to P4, which is RM2 per unit. (ii) In the long run, firms in competitive market achieve allocative efficiency and productive efficiency in their production. Explain what is meant by allocative efficiency and productive efficiency.

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

Damai Biru Sdn. Bhd. is a firm selling homogenous product in a competitive
market. It has the following cost curves:
Price
10
MC
ΑΤ
AVC
P1
P2
P3
P4
1
+ +>
Quantity
Figure Q2 : various cost curves in a competitive market
(i) Calculate the amount of profit earned by the firm if the price is P2, which is
RM4.5 per unit.
(i) Analyse whether the firm should continue its operation or to shut down as the
price falls to P4, which is RM2 per unit.
(ii) In the long run, firms in competitive market achieve allocative efficiency and
productive efficiency in their production.
Explain what is meant by allocative efficiency and productive efficiency.

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