P ECON 222 Standardized Artifact The Individual Firm MC Q D = MR In the adjacent graph, illustrate the following for a perfectly competitive firm. a) Set Q500 by identifying this profit maximizing quantity and labeling it as 500 on the graph. b) Set P = $24 by identifying this profit maximizing price and labeling it as $24 on the graph. c) Draw and clearly label an average total cost curve such that there is negative profit. d) If the firm's maximum profit is a $250 loss, then what is the value of average total cost (ATC) at Q* = 500? Sketch the ATC curve on the graph to show the loss and label the dollar value of the ATC at Q* = 500. e) The firm will base its shut-down decision on average variable cost (AVC). Sketch an AVC curve to show a condition in which the firm will not shut down in the short run. f) What is the possible range of values that AVC could take on at Q* = 500? g) Assume that at Q* we have an AVC = $10. What would the firm's profit be if it did decide to shut down in the short run?
P ECON 222 Standardized Artifact The Individual Firm MC Q D = MR In the adjacent graph, illustrate the following for a perfectly competitive firm. a) Set Q500 by identifying this profit maximizing quantity and labeling it as 500 on the graph. b) Set P = $24 by identifying this profit maximizing price and labeling it as $24 on the graph. c) Draw and clearly label an average total cost curve such that there is negative profit. d) If the firm's maximum profit is a $250 loss, then what is the value of average total cost (ATC) at Q* = 500? Sketch the ATC curve on the graph to show the loss and label the dollar value of the ATC at Q* = 500. e) The firm will base its shut-down decision on average variable cost (AVC). Sketch an AVC curve to show a condition in which the firm will not shut down in the short run. f) What is the possible range of values that AVC could take on at Q* = 500? g) Assume that at Q* we have an AVC = $10. What would the firm's profit be if it did decide to shut down in the short run?
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter8: Perfect Competition
Section: Chapter Questions
Problem 20RQ: What two lines on a cost curve diagram intersect at the zero-profit point?
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Transcribed Image Text:P
ECON 222 Standardized Artifact
The Individual Firm
MC
Q
D = MR
In the adjacent graph, illustrate the following for a perfectly
competitive firm.
a) Set Q500 by identifying this profit maximizing
quantity and labeling it as 500 on the graph.
b) Set P = $24 by identifying this profit maximizing price
and labeling it as $24 on the graph.
c) Draw and clearly label an average total cost curve such
that there is negative profit.
d) If the firm's maximum profit is a $250 loss, then what
is the value of average total cost (ATC) at Q* = 500?
Sketch the ATC curve on the graph to show the loss
and label the dollar value of the ATC at Q* = 500.
e) The firm will base its shut-down decision on average
variable cost (AVC). Sketch an AVC curve to show a
condition in which the firm will not shut down in the
short run.
f) What is the possible range of values that AVC could
take on at Q* = 500?
g) Assume that at Q* we have an AVC = $10. What
would the firm's profit be if it did decide to shut down
in the short run?
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