(What’s So Perfect About Perfect Competition) Use the following data to answer the questions. Marginal Marginal Quantity Cost Benefit 0 — — 1 $ 2 $10 2 $ 3 $ 9 3 $ 4 $ 8 4 $ 5 $ 7 5 $ 6 $ 6 6 $ 8 $ 5 7 $10 $ 4 8 $12 $ 3 a. For the product shown, assume that the minimum point of each firm’s average variable cost curve is at $2. Construct a demand and supply diagram for the product and indicate the equilibrium price and quantity. b. on the graph, label the area of consumer surplus as f. Label the area of producer surplus as g. c. If the equilibrium price were $2, what would be the amount of producer surplus?

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Q: 0 1 2 3 4 5 B 7 8 6 $60.00 30:00 20.00 15.00 12.00 10.00 857 7.50 6:47 $45:00 42 50 40.00 37:50…

A:

Profit Maximization

Economic activity is related to the use of scarce resources of the economy that are used for producing goods and services which are required to satisfy various demands of the people. In other words, it can be said that it is all about satisfying the unlimited demands of individuals with the limited resources available. The production decision is taken by the producers or the firms. In economics, the terms ‘producers’, ‘suppliers’, and ‘firms’ are interchangeable. Now the question arises, what does a firm actually mean?