Refer to the following diagram, which shows short run cost curves for a firm, fo
ID: 1110446 • Letter: R
Question
Refer to the following diagram, which shows short run cost curves for a firm, for question 13-15. AVC Prioe Quantity 10 13. If price is $6, the economic profit is A. $O B. -$20 C.$10 D. -$100 14. Refer to the following graphs 'a' and 'b The long run cost curve S/Q S/Q LAC 2o A. in graph b' is representing an industry that can be characterized as perfectly competitive B. in graph 'b' is representing an industry that can be characterized as a natural monopoly C. in graph 'a'is representing an industry that can be characterized as D. in graph a' is representing an industry that can be characterized as a natural monopol 15. Assume fixed costs are 60 and labor costs $10 per unit. The first laborer produces 20 units of output Subsequent hires add 5 units less to production than the previous worker. Thus the second worker adds 15, the third adds 10 etc. What is the average variable cost when output is 50 A. $2 B. $12.5C. $1.25 D. $0.80 Section 2 3. In chapter 2, we learnt that demand curves are downward sloping; ie. the lower the price, higher the level of quantity. Why the demand curve facing a perfectly competitive firm is horizontal? 2 points)Explanation / Answer
Q13
Answer
the firm produces at MC=P
where
Q=10
P=6
ATC=8
Profit=(P-ATC)*Q
=(6-8)*10
=-20
The profit is $-20
option B
Q14
Answer
Option D
The Natural monopoly has to decrease long-run average cost curve and that is depicted in figure a, which means it is natural monopoly.
Also, the perfectly competitive firm does not have fixed shape for long-run average total cost so we can not determine it.
Q15
The total output equal to 50 at
the first worker produce 20
second 15
third 10
fourth 5
total of all output=20+15+10+5=50
the wage for four workers=4*10=40
The total wage paid is variable cost
average variable cost=variable cost/quantity
=40/50
=0.8
option D