4. Below are the cost curves for Viking Inc. It operates in a perfectly competit

Question

4. Below are the cost curves for Viking Inc. It operates in a perfectly competitive market. $90.00 $80.00 $70.00 t $60.00 o $50.00 t $40.00 S $30.00 $20.00 $10.00 MC ..AVC ATO 200 500 600 uan a. In the short-term: i. The company would make an economic profit if the price of its product was above what dollar amount? The company would shut down if the price of its product was under what dollar amount? ii. b. In the long-term: Firms would exit the market if the price of the product was under what dollar amount? i. ii. Firms would enter the market if the price of the product was above what dollar amount?

Explanation / Answer

A)

I) Positive economic profit when P > ATC or P > $50

Ii) Shut down when P is below min AVC or P < 40

B)

I) Exit when P < 50 or when P < ATC

II) Enter market in case of positive economic profits or when P > ATC or P > 50

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