The graph below shows the different costs of production that are relevant for a producer that...

 

Transcribed Image Text:

The graph below shows the different costs of production that are relevant for a producer that wants to maximize profits. Based on the information provided in the graph, answer the questions below. Price. D B MC AFC AC AVC Quantity A) Why is the Average Cost (AC) curve U-shaped? B) Which point in the graph would represent the marginal revenue for producers? C) The profit-maximizing condition is Price=Marginal Cost (P=MC). What is the point in the graph that should determine the quantity produced to obtain a maximum profit? D) Should the producer stay open or shut down? E) Can the firm obtain negative profits? Explain. F) From which point would the producer have positive profits (the breakeven point)? G) What curve represents the supply curve? Is it the entire curve? If not, from which point does it start? Explain. H) Which type of cost will not matter for the producer's choice? 1) Now suppose the price is above the AC at $50 (green line) and the quantity that maximizes profits is 100 units. The AC is $30 at this level of production. Mark these points in the graph above. J) What is the profit this firm is making? Mark the area in the graph above that is equivalent to the firm's profit. The graph below shows the different costs of production that are relevant for a producer that wants to maximize profits. Based on the information provided in the graph, answer the questions below. Price. D B MC AFC AC AVC Quantity A) Why is the Average Cost (AC) curve U-shaped? B) Which point in the graph would represent the marginal revenue for producers? C) The profit-maximizing condition is Price=Marginal Cost (P=MC). What is the point in the graph that should determine the quantity produced to obtain a maximum profit? D) Should the producer stay open or shut down? E) Can the firm obtain negative profits? Explain. F) From which point would the producer have positive profits (the breakeven point)? G) What curve represents the supply curve? Is it the entire curve? If not, from which point does it start? Explain. H) Which type of cost will not matter for the producer's choice? 1) Now suppose the price is above the AC at $50 (green line) and the quantity that maximizes profits is 100 units. The AC is $30 at this level of production. Mark these points in the graph above. J) What is the profit this firm is making? Mark the area in the graph above that is equivalent to the firm's profit.