i need help in part (e),(f),(g) part . i do\'nt know whether it is correct or no
ID: 1164577 • Letter: I
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i need help in part (e),(f),(g) part . i do'nt know whether it is correct or not . please explain it immediately
4. The following graph shows the cost curves for a typical firm. 18 U 16 14 ?me 12 E l AVC 10 0 2 46 8 10 121416 18 20 2224 26 28303234 Quantity a. Identify the following curves ( IV): i. Marginal Cost I Y ii. Average Cost iii. Average Fixed Cost iv. Average Variable cost b. Marginal cost is minimized when output is equal to about_2units. c. The efficient scale of production is about 2 units. d. Average Cost is minimized when output is about 5units. ( Point R) ? e. If the market price falls below this firm will be suffering economic losses. ? f. If the market price falls below ? this firm will choose to shut down in the short run. ? g. If the market price were $14, this firm will produce 2 8 units and earn approximately_in conomic profit.Explanation / Answer
e) A firm would suffer losses if it cannot bear its fixed costs .i.e when marginal cost is below average cost. At this point firm still operates if it can cover its variable cost which is at market price $11 where marginal cost cuts the minimum point of average cost.
f) A firm would shut down when it cannot bear even its variable costs .i.e. for all prices below the point where marginal cost curve intersects minimum level of average variable cost. From the figure, it is at $7
g) If the market price is $14 firm will produce 28units and economic profits would be (p-ac)*q
(14-12)*28 = 2*28 =$56
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