The figure given below shows the revenue and cost curves of a perfectly competit
ID: 1223110 • Letter: T
Question
The figure given below shows the revenue and cost curves of a perfectly competitive firm.
Figure 10.2
MC: Marginal cost curve
MR: Marginal revenue curve
ATC: Average-total-cost curve
AVC: Average-variable-cost curve
Refer to Figure 10.2. What is the firm’s total fixed cost at the profit-maximizing output level?
$450
$400
$600
$300
$500
The figure given below shows the revenue and cost curves of a perfectly competitive firm.
Figure 10.2
MC: Marginal cost curve
MR: Marginal revenue curve
ATC: Average-total-cost curve
AVC: Average-variable-cost curve
Explanation / Answer
$300
The profit maximizing condition of a perfectly competitive firm is P = MR = MC. Since MR = 50, the profit maximizing output will be produced where MC = 50. That is, the output = 20 units.
Now at a given level of output, AFC = ATC - AVC
At output = 20 units. AFC = 35 - 20 = $15 per units.
AFC = TFC/output
TFC = AFC * output = $15 * 20 = $300
$300