Please Explain with Details questions six and seven. The answer for question six
ID: 1099742 • Letter: P
Question
Please Explain with Details questions six and seven. The answer for question six is A and the answer for seven is C
In the above figure, at a price of $5, the firm's output would be_____ units and it would 12; incur an economic loss 5; shutdown 16; breakeven 12; breakeven 7. In order to be successful, a cartel must find a way to encourage members to produce more than they would otherwise produce agree on the total level of production for the cartel, but they need not agree on the amount produced by each member agree on the total level of production and on the amount produced by each member. agree on the prices charged by each member, but they need not agree on amounts producedExplanation / Answer
6) At a price of $5 the firms charges a price that is equal to min of AVC. At this price the firm is able to cover its variable costs. However, it cannot cover its fixed costs leading to economic losses. This is eveident by the fact that the point in below the ATC curve.
Furthermore, this price is also the shutdown point. below the $5 level, the firm will cannot cover its fixed as well as varaible costs.
Thus, at $5, the output is 12 units and the firm incurs economic losses; further, it is also a shut down point. Therefore, option A is correct.
Note: in option B, if it was given 12 and shut down point it will be the best available answer, and reg option c and d, it cannot be break even point, as the break even condition is that the TR= TC, and it happens at price $8.
7) to be sucessful cartel, first they have to agree on the level of output( limit production) and price. Further, they have to decide which the quantity that has to be produced by each member, there is no need for price fixing for each member as the price is already fixed, and as per the agreement each member has to sell at the same price irrespective of the quantity.
Thus, option C is correct.