Graph below represents the cost structure of an individual firm in a perfectly competitive market. ATC MC 50 40 AVC 30 20 10 8 10 11 12 Quantity (per day) a. Write down the break-even and the shut-down points (both corresponding quantities and prices) for this firm on the table below. quantity (q) Price (P) Break-even Point Shut-down Point b. If the price in this market is $50, find the profit maximizing output of firm A by explaining the profit maximizing condition for a perfectly competitive firm. Calculate total revenue, total cost, total variable cost and the profit of the firm at the profit maximizing output. Show your calculations If the price decreases to $25. C. 1. Considering the short-run: would firm earn positive or negative profit in this new scenario? Would it continue operating or stop production? Explain your answer ii. Considering the long-run: would new firms enter to the market or would existing firms exit from it? What would happen to the market equilibrium? Explain your answer. Price and costs (dollars)

Graph below represents the cost structure of an individual firm in a perfectly competitive market. ATC MC 50 40 AVC 30 20 10 8 10 11 12 Quantity (per day) a. Write down the break-even and the shut-down points (both corresponding quantities and prices) for this firm on the table below. quantity (q) Price (P) Break-even Point Shut-down Point b. If the price in this market is $50, find the profit maximizing output of firm A by explaining the profit maximizing condition for a perfectly competitive firm. Calculate total revenue, total cost, total variable cost and the profit of the firm at the profit maximizing output. Show your calculations If the price decreases to $25. C. 1. Considering the short-run: would firm earn positive or negative profit in this new scenario? Would it continue operating or stop production? Explain your answer ii. Considering the long-run: would new firms enter to the market or would existing firms exit from it? What would happen to the market equilibrium? Explain your answer. Price and costs (dollars)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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