Answer questions below using the cost curves for the price-taking firm shown in the following graph: SMC ATC €0 A a 5 Price and cost (dallan) T AVC
Answer questions below using the cost curves for the price-taking firm shown in the following graph: SMC ATC €0 A a 5 Price and cost (dallan) T AVC
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter8: Perfect Competition
Section: Chapter Questions
Problem 39P: The AAA Aquarium Co. sells aquariums for 20 each. Fixed costs of production are 20. The total...
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economics. answer only g,h
![2. Answer the questions below using the cost curves for the price-taking firm shown in
the following graph:
SMC
ATC
AVC
0
100 200 300 400 500 600 700 800 900
Output
a. If price is $7 per unit of output, draw the marginal revenue curve. The manager
should produce units to maximize profit.
b. Because average total cost is $
for this output, total cost is $
c. The firm makes a profit of $
d. At.
units, profit margin (or average profit) is maximized. Why is this output
level different from the answer to part a?
e. Let price fall to $3, and draw the new marginal revenue curve. The manager should
now produce
units to maximize profit.
f. Total revenue is now $
and total cost is $
The firm makes a loss of
$
g. Total variable cost is $
„ leaving $
to apply to fixed cost.
k. If price falls below $
the firm will produce zero output. Explain why.
O
OD
7
Price and cost (dollars)
2
0
40
4
2
T](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F7f376335-5838-4880-898d-db1c4daac38a%2F10cdb45e-692f-4e25-ace5-213fe7a8e03f%2Fb2p6wxn_processed.png&w=3840&q=75)
Transcribed Image Text:2. Answer the questions below using the cost curves for the price-taking firm shown in
the following graph:
SMC
ATC
AVC
0
100 200 300 400 500 600 700 800 900
Output
a. If price is $7 per unit of output, draw the marginal revenue curve. The manager
should produce units to maximize profit.
b. Because average total cost is $
for this output, total cost is $
c. The firm makes a profit of $
d. At.
units, profit margin (or average profit) is maximized. Why is this output
level different from the answer to part a?
e. Let price fall to $3, and draw the new marginal revenue curve. The manager should
now produce
units to maximize profit.
f. Total revenue is now $
and total cost is $
The firm makes a loss of
$
g. Total variable cost is $
„ leaving $
to apply to fixed cost.
k. If price falls below $
the firm will produce zero output. Explain why.
O
OD
7
Price and cost (dollars)
2
0
40
4
2
T
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