Answered: Asşuming this firm maximizes profit, it…

Asşuming this firm maximizes profit, it will: a. Produce 0A at a price of P Produce OD at.a.price of P C. Incur a total cost of GC times 0C at point I. d Do all the above.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter8: Perfect Competition

Section: Chapter Questions

Problem 20RQ: What two lines on a cost curve diagram intersect at the zero-profit point?

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Question

Asşuming this firm maximizes profit, it will:
a. Produce 0A at a price of P
Produce OD at.a.price of P
C. Incur a total cost of GC times 0C at point I.
d Do all the above.

Expert Solution

Step 1

The perfectly competitive firm is a price taker and can sell any quantity of commodity at the market fixed price P. The best level of output for a competitive firm is at the point where P or MR equals MC and MC is rising. At this level of output the firm can either make a profit, break even or incur a loss. As long as P is higher than the ATC at the best level of output, the firm makes a profit.

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