CHAPTER12 12.2) Given that the cost curves below represent a perfectly competiti
ID: 1124510 • Letter: C
Question
CHAPTER12 12.2) Given that the cost curves below represent a perfectly competitive firm in the short run, answer the questions that follow. Assume the goal of the firm is to maximize profits. Round all estimates from the graph to the nearest dollar and whole number for quantity. Show your calculations or explain how you got your answer in one sentence. Price 46 42 40 38 36 34 32 30 28 26 24 MC ATC 20 18 16 14 12 10 8 6 4 2 AVC Quantity 0 2 4 6 8 10 12 14 16 18 a) What is the profit maximizing quantity if price equals $4? b) What is quantity where the firm suffers loses equal to total fixed costs? c) What is the level of total profits/losses if the price equals $10? d) What is the level of average fixed costs if the price equals $32? e) What is the profit/loss per unit if the price equals $14?Explanation / Answer
a) if price is $4, which is below the AVC curve then profit maximizing quantity is to produce nothing i.e. 0
b) at price P= $10 i.e. intersection of MC and AVC curves is where firm suffers loss equal to total fixed cost
c) at P = $10, total losses are 6*(40-10) = $180
d) at P=$32, Average fixed cost is 32-16 =$16
e) at P=$14, Total losses are = 7*(38-14) =$168