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assume that a perfectly competitive firm has MC=AVC=$12, MC=ATC=$20, and MC=MR=$24. On the basis of this...

assume that a perfectly competitive firm has MC=AVC=$12, MC=ATC=$20, and MC=MR=$24. On the basis of this information, can we tell what level of output will the firm choose? Is the firm making a profit? Is the firm making a rent?

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Answer #1

On the basis of this information, can we tell what level of output will the firm choose?

The firm chooses to produce at MC=MR=$24 as the profit is maximum at MC=MR=P in the perfect competition

Is the firm making a profit?

The firm is making a profit as

Profit=(P-ATC)*Q

P>ATC as MC=P at $20 and MC=MR at $24

Is the firm making a rent?

Yes, as the firm is earning economic profit in the short run so it is earning rent as rent is the profit above the long-run profits.

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