Answered: The purely competitive firm in 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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Question

The purely competitive firm in the above exhibit should

a.	shut down
b.	produce 5 units of output
c.	produce 10 units of output
d.	produce 12 units of output
e.	produce 20 units of output

6. At the profit-maximizing/loss-minimizing level of output, what is the firm’s profit or loss?
Based on this situation, what do you recommend for the firm and why?

Price
MC
158
99
90
77
ATC
AVC
50
45
$50
D = AR = MR
Quantity
(millions)
95
5
10
12
20
%24

Expert Solution

Step 1

In perfectly competitive market, equilibrium is achieved at the intersection of demand and supply.

So the equilibrium price is $ 50. At profit maximisation, P = MC

P = MC at quantity = 12

The corresponding ATC is $ 90

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