Tim is a producer of Christmas trees in a perfectly competitive market that is currently in long run equilibrium at the price of $50. At equilibrium quantity of 100 trees, Tim’s average variable cost per tree is $35.

a). Draw a graph for both the industry and Tim’s firm (include MR, MC, ATC, and AVC).

i). Label the area of Tim’s Total Revenue

ii). Label the area of Total Cost iii. Label the shut down point

b). Describe Tim’s firm in terms of the following:

i). Productive efficiency

ii). Allocative efficiency

c). With new graphs, show the results of an increase in demand for Christmas trees on the following:

i). Price and quantity of Tim’s firm in the short-run

ii). Price and quantity of Tim’s firm in the long-run

Answer rating: 100% (QA)

Solution Given that Under perfect competition the market is in equilibrium where the demand made by all buyers market demand is equal to the supply ma... View the full answer