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Question
Microeconomics
Posted 9 months ago

The average total cost and marginal cost curves for Blammo Enterprises are shown in this figure:

Assume Blammo operates in a perfectly competitive industry.

If this firm is willing to produce exactly 10 units, what must be true?

Choose 1 answer:
(A) The price is $32\$ 32
(B) The firm is making a loss.
(C) The firm is making a profit
(D) The price is $179\$ 179
(E) The price is $65\$ 65
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Answer from Sia
Posted 9 months ago
Solution
a
Marginal Cost (MC) and Average Total Cost (ATC) Curves: The MC curve intersects the ATC curve at its minimum point. This is a key point in determining the firm's cost structure
b
Perfect Competition: In a perfectly competitive market, firms are price takers, meaning the price is determined by the market. The firm will produce where P=MCP = MC
c
Profit or Loss Determination: To determine if the firm is making a profit or loss, compare the price to the ATC at the given quantity. If P>ATCP > ATC, the firm makes a profit. If P<ATCP < ATC, the firm incurs a loss
d
Given Data Analysis: At a quantity of 10 units, the MC is 179andtheATCis179 and the ATC is 72
e
Conclusion: Since the firm is producing 10 units, the price must be equal to the MC at that quantity, which is $179
Answer
(D) The price is $179
Key Concept
Marginal Cost and Average Total Cost in Perfect Competition
Explanation
In a perfectly competitive market, firms produce where the price equals the marginal cost. At 10 units, the marginal cost is 179,sothepricemustbe179, so the price must be 179.

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