Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
7) Refer to Figure 13-15 to answer the following questions.
- What is the profit-maximizing output level?
- What is the profit-maximizing price?
- What is the average total cost at the profit-maximizing output level?
- What area represents the firm's profit?
- At which output level are economies of scale exhausted?
- Does this graph most likely represent the long run or the short run? Why?
Transcribed Image Text:The image contains a graph illustrating economic concepts related to price determination, costs, and market dynamics. The graph is a typical microeconomic representation visualizing the intersection of various curves representing demand, marginal cost, and average total cost.
### Graph Details:
- **Axes**:
- The vertical axis is labeled "Price and cost per unit."
- The horizontal axis is labeled "Quantity."
- **Curves**:
- **Demand Curve**: Downward sloping, indicating the typical inverse relationship between price and quantity demanded.
- **Marginal Cost (MC) Curve**: Upward sloping, reflecting increasing marginal costs as quantity increases.
- **Average Total Cost (ATC) Curve**: U-shaped, due to economies and diseconomies of scale.
- **Marginal Revenue (MR) Curve**: Downward sloping, positioned below the demand curve, demonstrating the decrease in additional revenue from selling one more unit.
### Points of Intersection:
- **Point a**: Where the MR and ATC curves intersect at a quantity of \( Q_1 \) and price \( P_1 \).
- **Point b**: Where the MR curve intersects the MC curve at quantity \( Q_2 \) and price \( P_2 \).
- **Point c**: Intersection of the ATC and MR curves at quantity \( Q_3 \).
- **Point d**: Intersection of the Demand and ATC curves at quantity \( Q_3 \).
- **Point e**: The MC curve intersects with the Demand curve at quantity \( Q_4 \) and price \( P_4 \).
The graph is used in economic analysis to display how firms determine the price and output level by examining where their marginal cost equals marginal revenue, and how these interact with average total costs and the market demand curve.
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