The following graph shows marginal cost, average total cost, and average variabl

Question

The following graph shows marginal cost, average total cost, and average variable cost curves for a typical perfectly competitive firm.

a. Draw the marginal revenue curve when market price is $6 and then label the profit-maximizing level of output.

Instructions: Use the tool 'MR' to draw the marginal revenue curve between Q = 0 and Q = 10. Then use the tool 'Q' to indicate the profit-maximizing level of output.

a. Why is a slightly larger quantity not preferred?

b. Why is a slightly lower quantity not preferred?

c. Label the shutdown point in your diagram.

    Instructions: In the graph above, use the tool 'SD' to indicate the shutdown point.


d. You have just discovered that shutting down means that you would lose your land zoning permit, which is required to start operating again. How does that change your answer to c?

This shifts the AVC curve down because the permit now must be counted as a marginal benefit of remaining in business. Its value will be lost if the firm shuts down. This raises the price at which shutdown is chosen.

A perfectly competitive firm sells its good for $21. If marginal cost is seven times the quantity produced, how much does the firm produce? Why?

Explanation / Answer

Please attach the diagram so that I can answer all the parts. Rest of them I am answering here

a. Option C as Mc will exceed MR.

b. Option C as MR would exceed MC.

c. diagram needed.

d. Option A.

e. Option D. As the equilibrium condition is Price = MC = MR. so, 7 * quantity = 21

Quantity = 21 / 7 = 3 units

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