Answered: The curves show the marginal cost (mc),…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

The curves show the marginal cost (mc), average variable cost (avc), marginal revenue (mr), and average total cost (atc) curves for a firm that sells mid-range cars in a competitive market. Use the area tool to draw the area representing the firms profit or loss, if the firm produces 6000 cars. You're answer should be a rectangle drawn with four corners. Part 2. When the firm produces 6000 cars it will (either earn a profit or suffer a loss) of $________ million

Price and Cost ($1000s)
75
2 8 8 8 8 9 9 8 822200
70
65
55
50
45
15
10
5
10
0
ATC
AVC
Quantity (thousands)
Ⓡ

Expert Solution

Introduction

A competitive market is a type of market structure in which the firm is a price taker, there are a large number of buyers and sellers, the product is homogeneous, there is easy entry and exit, and perfect information exists.

Firms have no market power to influence the price of the product or service they sell due to which the demand and the marginal revenue curve are horizontal in shape.

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