Refer to the figure above. Which of the following is true? Without an increase i
ID: 1189565 • Letter: R
Question
Refer to the figure above. Which of the following is true?
Without an increase in demand or a decrease in costs, this firm will earn negative economic profits.
This firm's optimal short run position is to produce Q2 and sell at P2 if AVC are less than P2.
This firm is earning negative economic profit equal to (P1-P2)(Q2).
All of the above are true.
None of the above is true.
Without an increase in demand or a decrease in costs, this firm will earn negative economic profits.
This firm's optimal short run position is to produce Q2 and sell at P2 if AVC are less than P2.
This firm is earning negative economic profit equal to (P1-P2)(Q2).
All of the above are true.
None of the above is true.
te PI P2 P3 94 4, DirExplanation / Answer
Answer is ALL THE ABOVE IS TRUE.
Since demand curve is continously below the average cost curve, whatever the price the firm charges it will earn loss. Thus (a) is true.
Firm's short run equilibrium can be P2 if it is above AVC. If price is greater than AVC then firm will though earn losses but it can survive in the industry if it covers its variable cost.
(c) is also true