Damai Biru Sdn. Bhd. is a firm selling homogenous product in a competitive market. It has the following cost curves: Price 10 MC ΑΤ AVC P1 P2 P3 P4 1 + +> Quantity Figure Q2 : various cost curves in a competitive market (i) Calculate the amount of profit earned by the firm if the price is P2, which is RM4.5 per unit. (i) Analyse whether the firm should continue its operation or to shut down as the price falls to P4, which is RM2 per unit. (ii) In the long run, firms in competitive market achieve allocative efficiency and productive efficiency in their production. Explain what is meant by allocative efficiency and productive efficiency.

Damai Biru Sdn. Bhd. is a firm selling homogenous product in a competitive market. It has the following cost curves: Price 10 MC ΑΤ AVC P1 P2 P3 P4 1 + +> Quantity Figure Q2 : various cost curves in a competitive market (i) Calculate the amount of profit earned by the firm if the price is P2, which is RM4.5 per unit. (i) Analyse whether the firm should continue its operation or to shut down as the price falls to P4, which is RM2 per unit. (ii) In the long run, firms in competitive market achieve allocative efficiency and productive efficiency in their production. Explain what is meant by allocative efficiency and productive efficiency.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter8: Cost Analysis

Section: Chapter Questions

Problem 5E

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