For each of the following graphs, identify the firms profit- maximizing ( or los

Question

For each of the following graphs, identify the firms profit- maximizing ( or loss- minimizing) out - put. Is each firm marketing a profit? If not should the firm continue to produce in the short - run?

Explanation / Answer

In first case ATC>AVC and MR>AVC but MC is cutting ATC above MR. hence the firm is making loss. but since MR>AVC firm could continue to produce in the short run. In second case MC is cutting ATC below MR and MR is also greater the AVC. hence the firm is earning excess profits and it should continue to produce in the short run. in 3rd case MR

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