The cost and revenue curves for a perfectly competitive industry are shown in this graph:

What is the price in this market and what quantity will this firm produce in the short run?

Choose 1 answer:
(A) $P_{2}$; this firm will exit the industry
(B) $P_{3}$; this firm will shut down in the short run
(C) $P_{3} ; Q_{3}$
(D) $P_{1} ; Q_{1}$
(E) $P_{3} ; Q_{2}$
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Question

The cost and revenue curves for a perfectly competitive industry are shown in this graph:

What is the price in this market and what quantity will this firm produce in the short run?

Choose 1 answer:
(A) $P_{2}$; this firm will exit the industry
(B) $P_{3}$; this firm will shut down in the short run
(C) $P_{3} ; Q_{3}$
(D) $P_{1} ; Q_{1}$
(E) $P_{3} ; Q_{2}$
Report a problem

Accepted Answer

∻Solution∻ ‖ a ⋮ Identifying the Price: In a perfectly competitive market, the price is determined by the intersection of the demand curve (D = MR) with the marginal cost curve (MC). ‖ ‖ b ⋮ Determining the Quantity: The firm will produce at the quantity where marginal cost (MC) equals marginal revenue (MR), which is also the price in a perfectly competitive market. This is the profit-maximizing condition. ‖ ‖ c ⋮ Short-Run Production Decision: If the price is at or above the minimum average variable cost (AVC), the firm will continue to produce in the short run. If the price is below AVC, the firm will shut down. ‖ ‖ d ⋮ Analyzing the Graph: Given the points marked on the graph, we need to find the point where MC intersects D = MR, and ensure that this price is not below AVC to avoid shutdown. ‖ ∻Answer∻ ⚹ $P_{3} ; Q_{3}$ ⚹ ∻Key Concept∻ ⚹ Profit Maximization in Perfect Competition ⚹ ∻Explanation∻ ⚹ In a perfectly competitive market, a firm maximizes profit by producing the quantity where marginal cost equals marginal revenue, provided the price covers the average variable cost. ⚹◊What is the relationship between marginal cost and average total cost in a perfectly competitive industry based on the cost and revenue functions presented in the graph?⍭ Generate me a similar question◊

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