The graph attached illustrates the Demand, Marginal Revenue, Marginal Costs, Average Total Costs and Average variable Cost curves for a firm in a perfectly competitive market.What is the Optimum level of the output for the firm and what is the maximum price the firm can charge? How do you know? At this price and output combination does the firm make economic profit of economic loss? Explain your answer.Calculate the economic profit or loss? Show your calculations. This graph illustrates various cost curves in microeconomics, ideal for an educational website explaining cost structures in a firm. The vertical axis represents costs, and the horizontal axis represents quantity.Key elements of the graph:1. **MC (Marginal Cost)**: This curve typically slopes upward, indicating that each additional unit of output costs more to produce than the previous one. 2. **ATC (Average Total Cost)**: This curve initially declines, reaches a minimum, and then slopes upward. It reflects the cost per unit of output, calculated by dividing total costs by the quantity produced.3. **AVC (Average Variable Cost)**: This curve shows a U-shape, similar to the ATC but starts lower and meets the ATC at the minimum point of the ATC. It accounts for variable costs per unit of output.4. **d, MR (Demand and Marginal Revenue)**: Represented as a horizontal line at a cost of 7. This line demonstrates a perfectly elastic demand, meaning the price remains constant regardless of quantity produced.Key intersections:- The intersection of the **MC** and **ATC** around a quantity of 10 indicates the minimum point of the ATC and is significant for determining the most efficient scale of production.- The horizontal line at the cost of 7 also intersects where the MC, ATC, and AVC meet, representing the break-even point where the firm covers all costs but does not make a profit.This graph is crucial for understanding how firms decide on production levels to maximize profit or minimize losses, emphasizing the importance of the marginal cost and its impact on overall firm strategy.

Answered: The graph attached illustrates the…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The graph attached illustrates the Demand, Marginal Revenue, Marginal Costs, Average Total Costs and Average variable Cost curves for a firm in a perfectly competitive market.

What is the Optimum level of the output for the firm and what is the maximum price the firm can charge? How do you know?
At this price and output combination does the firm make economic profit of economic loss? Explain your answer.
Calculate the economic profit or loss? Show your calculations.

This graph illustrates various cost curves in microeconomics, ideal for an educational website explaining cost structures in a firm. The vertical axis represents costs, and the horizontal axis represents quantity.

Key elements of the graph:

1. **MC (Marginal Cost)**: This curve typically slopes upward, indicating that each additional unit of output costs more to produce than the previous one.

2. **ATC (Average Total Cost)**: This curve initially declines, reaches a minimum, and then slopes upward. It reflects the cost per unit of output, calculated by dividing total costs by the quantity produced.

3. **AVC (Average Variable Cost)**: This curve shows a U-shape, similar to the ATC but starts lower and meets the ATC at the minimum point of the ATC. It accounts for variable costs per unit of output.

4. **d, MR (Demand and Marginal Revenue)**: Represented as a horizontal line at a cost of 7. This line demonstrates a perfectly elastic demand, meaning the price remains constant regardless of quantity produced.

Key intersections:

- The intersection of the **MC** and **ATC** around a quantity of 10 indicates the minimum point of the ATC and is significant for determining the most efficient scale of production.
- The horizontal line at the cost of 7 also intersects where the MC, ATC, and AVC meet, representing the break-even point where the firm covers all costs but does not make a profit.

This graph is crucial for understanding how firms decide on production levels to maximize profit or minimize losses, emphasizing the importance of the marginal cost and its impact on overall firm strategy.

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