**Title: Understanding Economic Graphs: Analyzing Optimal Output**In the diagram above, we have a breakdown of various economic curves critical in determining a firm’s optimal output. Here’s a detailed explanation:**Graph Elements:**- **MC (Marginal Cost):** The red curve, representing the cost of producing one more unit.- **ATC (Average Total Cost):** The upper blue curve, indicating the average cost per unit across all units produced.- **AVC (Average Variable Cost):** The lower blue curve, showing the average of variable costs for each unit of output.- **MR = P (Marginal Revenue = Price):** The horizontal black line, lying at $15, representing the additional revenue gained from selling one more unit, assumed to be constant in this scenario.**Critical Points:**1. **Price Levels:** - There are three indicated price levels on the left: $21.00, $20.00, and $19.50, each intersecting with different curves.2. **Output Levels:** - Vertical dashed lines represent output levels: 30, 40, and 50 on the x-axis, each correlating with different intersections of the cost and revenue curves. 3. **Intersections:** - At 30 units, the ATC is above MR = P. - At 40 units, MC intersects MR = P, suggesting this is a break-even or optimal production point. - At 50 units, ATC is again above MR = P.**Question:**- The optimal output for the firm, according to the diagram above, is tied to the point where MC intersects MR = P, which is at 40 units.**Choices:**- **40 [Correct Answer]**- 30- zero (the firm should shutdown)- 50Understanding these curves helps firms maximize profits by identifying the most cost-efficient quantity of production consistent with market pricing.

Profit is maximised at point where marginal revenue is equal to marginal cost. Since Price is…

Answered: MC АТС AVC $21.00 $20.00> $19.50 MR =…

MC АТС AVC $21.00 $20.00> $19.50 MR = $15.00 $12.50 - 30 40 50 Output (Q) The optimal output for the firm shown in the diagram above is: 40 30 zero (the firm should shutdown). 50

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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