onsider an individual firm competing in a market with many other producers and producing an undifferentiated product (i.e., consumers consider the product from one firm to be exactly as good as the product from any other firm). Assume this firm faces a conventional production technology. The short-run production function has a small range of increasing marginal product (increasing marginal returns) and then is subject to the Law of Diminishing Marginal Product (diminishing marginal returns). Putting quantity q on the horizontal axis and dollars $ on the vertical axis, depict four important curves: Average Fixed Cost (AFC), Average Variable Cost (AVC), Average Total Cost (ATC), and Marginal Cost (MC). Label each of these curves with the subscript 0 to indicate that these are the original (or current) curves. For this question, assume the individual producers in this industry have no control over prices; they must accept the exogenously given price, P0. On a graph containing the four curves MC0, AFC0, AVC0, and ATC0, depict the profit-maximizing output for this firm under the assumption that the exogenously given price of P0 is just high enough to allow the producer to arrive at an optimal output, q0, that results in zero profits

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider an individual firm competing in a market with many other producers and producing an undifferentiated product (i.e., consumers consider the product from one firm to be exactly as good as the product from any other firm).

Assume this firm faces a conventional production technology. The short-run production function has a small range of increasing marginal product (increasing marginal returns) and then is subject to the Law of Diminishing Marginal Product (diminishing marginal returns).

Putting quantity q on the horizontal axis and dollars $ on the vertical axis, depict four important curves: Average Fixed Cost (AFC), Average Variable Cost (AVC), Average Total Cost (ATC), and Marginal Cost (MC). Label each of these curves with the subscript 0 to indicate that these are the original (or current) curves.
For this question, assume the individual producers in this industry have no control over prices; they must accept the exogenously given price, P₀.On a graph containing the four curves MC₀, AFC₀, AVC₀, and ATC₀, depict the profit-maximizing output for this firm under the assumption that the exogenously given price of P₀ is just high enough to allow the producer to arrive at an optimal output, q₀, that results in zero profits

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