MC ATC 50 40 AVC E 30 20 10 8 Quantity (per day) 5 10 11 12 a. If the price in this market is $50, find the profit maximizing output of firm A by explaining the profit maximizing condition for a perfectly competitive firm. Calculate total revenue, total cost, total variable cost and the profit of the firm at the profit maximizing output. Show your calculations b. If the price decreases to $25. c) Considering the short-run: would firm earn positive or negative profit in this new scenario? Would it continue operating or stop production? Explain your answer. d) Considering the long-run: would new firms enter to the market or would existing firms exit from it? What would happen to the market equilibrium? Explain your answer. Price and costs (dollars)

MC ATC 50 40 AVC E 30 20 10 8 Quantity (per day) 5 10 11 12 a. If the price in this market is $50, find the profit maximizing output of firm A by explaining the profit maximizing condition for a perfectly competitive firm. Calculate total revenue, total cost, total variable cost and the profit of the firm at the profit maximizing output. Show your calculations b. If the price decreases to $25. c) Considering the short-run: would firm earn positive or negative profit in this new scenario? Would it continue operating or stop production? Explain your answer. d) Considering the long-run: would new firms enter to the market or would existing firms exit from it? What would happen to the market equilibrium? Explain your answer. Price and costs (dollars)

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter8: Perfect Competition

Section: Chapter Questions

Problem 4.7P

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