The Market for Good X is characterized by monopolistle competition. There are no

Question

The Market for Good X is characterized by monopolistle competition. There are no external costs or benefits generated by the production and consumption of X. The graph below depicts the demand and cost structure of a typical firm in this market MC ATC 3381 MRX This firm will maximize its Total Revenue (TR) if it produces at 3. q(3) A. 1. q(1) 2. q(2) 4. q(4) B. This firm's level of Average Fixed Costs (AFC) will be lowest at 1. q(1) 2. q(2) 3. q(3) 4. (4) 1. q(1) 2. q2)3. q(3) 4. (4) 4. q(4) 1. q() 2. q(2) 3. q(3) 4. q(4) 1. q(1) 2. q2)3. (3) 4. q(4) C. At which production point will this firm achieve productive efficiency? D. At which production point will economic (allocative) efficiency be attained? 1. q(l) 2. q(2) 3. q(3) E. At which production point will this firm break even (i.e., earn zero economic profits)? F. At which production point is this firm maximizing profits? G. Identify, on the graph, the price- P*-that this firm will charge when it maximizes profits. Shade/color in the area in this graph that represents the Deadweight Loss of Economic Surplus that this firm imposes on the economy. Identify this shaded area as "DWL."

Explanation / Answer

Answer.)

A.) 3.) q(3)

B.) 4.) q(4)

Average fixed cost reduces as more quantities are produced.

C.) 4.) q(4)

Productive efficiency is concerned with producing goods and services with the optimal combination of inputs to produce maximum output for the minimum cost.

D.) 3.) q(3)

Allocative efficiency occurs where price is equal to marginal cost ( P=MC), because price is society's measure of relative worth of a product at the margin or its marginal benefit.

E.) 1.) q(1)

Note that Price will be equal to ATC at q(1) output level. So, zero economic profits.

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