Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
6.
Refer to Figure 2. This farmer's shutdown point is at a
Select one:
a. $4
b. $7
c. $10
d. $0
Transcribed Image Text:Price per bushel
53197
11
4
0
Cost and demand conditions
MC
ATC
AVC
V
3
d = MR
6 9 12 16 17 q
Bushels of wheat
Expert Solution
Step 1: Define perfect competition
In perfect competition,
There exists a large number of buyers and sellers.
The firm will produce where the price is equal to the marginal cost.
The profit is when the price is greater than the ATC, i.e., when the demand curve lies above the ATC.
The firm will produce in the short run when it is able to cover its variable cost.
In the long run, Each firm earns zero economic profit.
This means, In the long run, price = ATC.
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