17) Is this firm in a perfectly competitive industry ? How do you know ? 18) On
ID: 2496010 • Letter: 1
Question
17) Is this firm in a perfectly competitive industry ? How do you know ?
18) On the diagram above, AVERAGE FIXED COST is the HIGHEST at .what Quantity ?
19) On the diagram above, AVERAGE VARIABLE COST is HIGHEST at. what Quantity ?
20) If the market Price =$80, what is the profit maximizing output level for this firm ?
21)At the output level you answered for question (20), what will be the TOTAL PROFITS for this firm?
22) What will be the price in the LONG RUN for firms in this industry ?
23) What quantity will this firm produce in the LONG RUN?
24) This firm would make POSITIVE profits if the market price was above what ?(how many dollars ?)
25) What quantity is the MAXIMUM TECHNICAL EFFICIENCY output for this firm
Demano URve Yo 1o0 a0o 30o 500Explanation / Answer
(17) Yes, this is a perfectly competitive firm because it has a horizontal demand curve which is the characteristic of perfect competition only.
(18) Average fixed cost (AFC) is highest when AC is falling and intersects demand (price) line, which is at Q = 100.
(19) When average variable cost (AVC) is highest, AC is lowest which is at Q = 200.
(20) Profit is maximized when Price = MC, at price = MC = $80 & Q = 300.
(21) Total profit = Q x (Price - AC) = 300 x $(80 - 40) = 300 x $40 = $12,000.
(22) In long run, price is the minimum average cost, i.e. price = $20.
(23) Corresponding long-run quantity = 200
(24) Profits are positive only when Price (= MC) > AC which is at P = $20.
(25) Efficient output is when firm operates at the lowest point of its Average Cost curve, i.e. when Q = 200.
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