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Figure 9.3 shows the cost structure of a firm in a perfectly competitive market. If the market price is $3 and the firm produces the output where MR=MC, its profit is: OA. - $1,200. OB. -$300. O C. - $900. O D. - $600. (・・・)) 68 15 10 CD 103 6 4.5 100 150 200 Figure 9.3 MC ATC AVC

Figure 9.3 shows the cost structure of a firm in a perfectly competitive market. If the market price is $3 and the firm produces the output where MR=MC, its profit is: OA. - $1,200. OB. -$300. O C. - $900. O D. - $600. (・・・)) 68 15 10 CD 103 6 4.5 100 150 200 Figure 9.3 MC ATC AVC

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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**Title: Understanding Cost Structures in Perfectly Competitive Markets** **Text Explanation:** Figure 9.3 illustrates the cost structure of a firm operating in a perfectly competitive market. The question posed is: If the market price is $3 and the firm produces the output where marginal revenue equals marginal cost (MR=MC), what is the firm's profit? The options provided are: - A. -$1,200 - B. -$300 - C. -$900 - D. -$600 **Graph/Diagram Explanation:** The graph on the right side of the image displays various cost curves: - **MC (Marginal Cost) Curve:** This curve shows the additional cost of producing one more unit. It initially decreases, reaches a minimum point, and then increases. - **ATC (Average Total Cost) Curve:** This curve reflects the average cost per unit at varying levels of production. It typically U-shaped. - **AVC (Average Variable Cost) Curve:** This represents the variable cost per unit. It lies below the ATC curve and is also U-shaped. **Key Observations:** - The horizontal axis (Q) represents the quantity of output. - The vertical axis ($) represents the cost/price per unit. - When MR = MC at a price of $3, identify where the MC curve intersects the price level of $3 on the vertical axis. **Analysis:** 1. Determine where the $3 price level intersects the MC curve. This intersection gives the output level. 2. Calculate the firm's profit by comparing the $3 market price to the ATC at this output level. 3. Profit (or loss) per unit is determined by subtracting the ATC from the market price. 4. Multiply the profit (or loss) per unit by the output quantity to find the total profit (or loss). This analysis helps in understanding how firms determine optimal output levels and profits in perfectly competitive markets based on cost structures.
Transcribed Image Text:**Title: Understanding Cost Structures in Perfectly Competitive Markets** **Text Explanation:** Figure 9.3 illustrates the cost structure of a firm operating in a perfectly competitive market. The question posed is: If the market price is $3 and the firm produces the output where marginal revenue equals marginal cost (MR=MC), what is the firm's profit? The options provided are: - A. -$1,200 - B. -$300 - C. -$900 - D. -$600 **Graph/Diagram Explanation:** The graph on the right side of the image displays various cost curves: - **MC (Marginal Cost) Curve:** This curve shows the additional cost of producing one more unit. It initially decreases, reaches a minimum point, and then increases. - **ATC (Average Total Cost) Curve:** This curve reflects the average cost per unit at varying levels of production. It typically U-shaped. - **AVC (Average Variable Cost) Curve:** This represents the variable cost per unit. It lies below the ATC curve and is also U-shaped. **Key Observations:** - The horizontal axis (Q) represents the quantity of output. - The vertical axis ($) represents the cost/price per unit. - When MR = MC at a price of $3, identify where the MC curve intersects the price level of $3 on the vertical axis. **Analysis:** 1. Determine where the $3 price level intersects the MC curve. This intersection gives the output level. 2. Calculate the firm's profit by comparing the $3 market price to the ATC at this output level. 3. Profit (or loss) per unit is determined by subtracting the ATC from the market price. 4. Multiply the profit (or loss) per unit by the output quantity to find the total profit (or loss). This analysis helps in understanding how firms determine optimal output levels and profits in perfectly competitive markets based on cost structures.
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