Question

Draw a graph that shows a perfectly competitive firm operating at a loss in the short...

  1. Draw a graph that shows a perfectly competitive firm operating at a loss in the short run. Label all curves and axes.
  2. Find the output Q at which this firm will operate in the short run.
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Answer #1

Answer :

Explanation :

Dark shaded area shows the short run losses for perfectly competitive firm.

When price is above average variable cost firm will operate even if it is making loss to minimise loss. When price will be below ATC, firm will occur losses.

Perfectly competitive firm produce where MR equals MC and in perfect competition price is equals to MR. Q maximum shows profit maximising quantity as it is at MC and MR equals.

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