Question
Asked Oct 27, 2019

Question 26
Consider the firm whose MC, AC, AVC, AFC functions are shown in the following graph. (The following is a description of the figure: This figure is a two-axis graph; in the horizontal line we measure output q, and in the vertical line dollars $; there are four curves. The first, MC starts at a positive level when q=0; more precisely, MC(0) is greater than 16 and lower than 30; then MC is decreasing for values of q in between 0 and 50; at 50 MC has a minimum; this minimum is MC(50)=10; after q=50, MC is increasing; in particular MC(100)=16, MC(120)=30. The second curve, AVC, starts at the same level of MC(0); it is decreasing when q is between 0 and 100; in this range AVC is above MC; at q=100, AVC crosses MC; more precisely, AVC(100)=MC(100)=16; for q>100, AVC is increasing and below MC. The third curve, AC, has a positive asymptote at zero, that is, it grows to plus infinity when q is very small; AC is decreasing when q is in between 0 and 120; in this range is above MC; AC(100)=34; AC and MC cross at q=120; more precisely, AC(120)=MC(120)=30; for q>=120, AC is increasing, below MC and above AVC.)

If the output price is equal to $34, then the firm maximizes profits by producing?

50 units

0 units

100 units

more than 0 but less than 50 units

more than 120 units

MC
AC
AVC
34
30
16
10
AF
Output
50
100 120
help_outline

Image Transcriptionclose

MC AC AVC 34 30 16 10 AF Output 50 100 120

fullscreen
check_circleExpert Solution
Step 1

The Marginal cost, Average cost, Average Variable cost and Average fixed cost curves of the firm are given in the figure.

Step 2

If the firm produces more than 120 units, it will incur higher economic losses and when the firm produces below 50, it will also generate economic loss as the price will be below the minimum AVC. At price of $16, the firm would earn an economic loss of $1,800 as the price is bel...

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour*

See Solution
*Response times may vary by subject and question
Tagged in

Business

Economics

Other

Related Economics Q&A

Find answers to questions asked by student like you

Show more Q&A add
question_answer

Q: What are challenges of IDEA expanding to the Indian market?

A: A few challenges of IDEA expanding into the Indian markets are mentioned below:Indian market has ext...

question_answer

Q: i need help with question 1

A: The indifference curve represents different combinations of goods that can be consumed by a consumer...

question_answer

Q: Molly loves hamburgers and soft drinks, but insists on consuming exactly one soft drink for every tw...

A: Molly consumes 2 hamburgers with 1 soft drink. They both are complimentary goods for her.The graph o...

question_answer

Q: hey i was doing my homework and i couldnt figure out this one. please help

A: The average total cost is equated at an equal average fixed cost in addition to the average variable...

question_answer

Q: In order to produce a new product, a firm must lease equipment at a cost of $25,000 per year. The ma...

A: The highest variable cost for break even on this project can be calculated as follows.

question_answer

Q: (Figure: Taxes and Deadweight Loss) In the diagram, the deadweight loss is ______ and government tax...

A: The correct answer to the above-mentioned question is C+E; B+D.

question_answer

Q: The price of the coffe rose sharply last month, while the quantity sold remained the same. Each of t...

A: Click to see the answer

question_answer

Q: Why might a company’s stock price fall after record earnings are announced? Conversely, why might th...

A: The current price at which the share of stock is sold and purchased in the market is called stock pr...

question_answer

Q: Question. Suppose that people expect inflation to equal 3 percent, but in fact prices rise by 5 perc...

A: The inflation is the abnormal increase in the general price level in the economy. When there is infl...