A profit-maximizing firm in a competitive market is currently producing 100 unit

Question

A profit-maximizing firm in a competitive market is currently producing 100 units of output. It has average revenue of $10, and its average total cost is $8. Identify which if any of the following are true: The firms average total cost curve intersects the marginal cost curve at an output level of less than 100 units. The firms average variable cost curve intersects the marginal cost curve at an output level of less than 100 units. The firms profit is $200. (List the letters for all of the correct statements):

Explanation / Answer

A and C are true.

In perfect competition, the AR = MR and also that the MR = MC. So, this implies that, AR = MR = Mc. Hence, MC = $10.

And that given ATC = $8.

Thus Mc > ATC which means that ATC curve is rising. Thus, for the efficient scale, the ATC intersects the MC at an output level of less than 100.

Profit = (P-ATC)*Q

In perfect competition, P = MC,

Profit = (10-8)*100

Profit = $200.

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