Question

. In a perfectly competitive industry

a). Draw a firm’s MC, ATC, AVC curves

b). On the industry side, show the market price such that the firm is making a positive amount of profit. On the firm’s diagram, label the optimal output the firm will produce as q*, the profit this firm will make.

c) Using another set of firm and industry diagrams, show the market price such that the firm is making zero profit. Label firm’s optimal output. Why is this firm still in operation when it’s making zero profit?

d). Using another set of firm and industry diagrams, show the market price such that the firm is making a loss but is still producing a positive amount of output. Label firm’s optimal output and loss. Why is this firm still producing when it’s making a negative profit?

e). Using another set of firm and industry diagrams, show the market price such that the firm will produce 0. Label firm’s output and loss.

Answer 1