Consider the graph below. If the price facing this firm was $2, what would their profits be? Note: if the firm would be better off shutting down than producing, the answer should be 0 (zero). Profit = _____

Question

BlackTom AI · Accepted Answer

First, identify the key decision rule for a competitive firm: it should compare the price (P) to its average variable cost (AVC) at the output level it would choose if it produced.
Next, recall that the shutdown decision hinges on whether P is at least as large as AVC at the profit-maximizing or chosen output. If P < AVC, the firm minimizes losses by shutting down and producing zero output.
Looking at the graph, the price facing the firm is P = 2. At the potential operating outputs shown, the AVC curve lies above 2 for the relevant quantities near the optimal production point; in other words, at the output the firm would produce if it operated, the variable cost per unit is higher than the price.
Since P < AVC at the operating output, the firm would incur losses that exceed fixed costs if it produced; shutting down eliminates these variable costs and yields zero profit.
Therefore, the appropriate outcome is that profits are zero when the price is $2, because the firm chooses to shut down rather than produce at a loss.

SA.999.600.91.SU25 Module 5 Cumulative Exam

Consider the graph below. If the price facing this firm was $2, what would their profits be? Note: if the firm would be better off shutting down than producing, the answer should be 0 (zero). Profit = _____

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SA.999.600.91.SU25 Module 5 Cumulative Exam

Consider the graph below. If the price facing this firm was $2, what would their profits be? Note: if the firm would be better off shutting down than producing, the answer should be 0 (zero). Profit = _____

查看解析

登录即可查看完整答案

类似问题

Assume that, for a perfectly competitive firm, marginal cost equals average variable cost at $10, marginal cost equals average total cost at $15, and marginal revenue equals marginal cost at $12. On the basis of this information, the firm should

Suppose a profit-maximising firm in a competitive market is unable to generate enough revenue to pay all of its fixed costs. In the short run it should:

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: ​ Refer to Figure 14-1. If the market price falls below $6, the firm will earn

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We know this firm is operating in the shortrun as it has both variable and fixed costs. At a quantity of 4, what is the minimum price this firm must receive before it would shutdown.

Figure 14-1Suppose that a firm in a competitive market has the following cost curves:​Refer to Figure 14-1. The firm should shut down if the market price is

Figure 15-1Suppose that a firm in a competitive market has the following cost curves:Refer to Figure 15-1. If the market price is $5, the firm will earn

In the short run, a perfectly competitive firm should keep producing as long as …

更多留学生实用工具

希望你的学习变得更简单

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: Refer to Figure 14-1. If the market price falls below $6, the firm will earn

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