This market from has firms with very high start up coals for

This market from has firms with very high start up coals for marketing and advertising This market form will only do well in the long ran if market demand is INLASTIC This market form has firms with excess capacity in the long run. On the diagram, AVERAGE FIXED COST is the HIGHEST at what Quantity? On the diagram AVERAGE VARIABLE is the HIGHEST at what Quantity? What kind of industry in this firm in? What is the profit maximizing Quantity for this firm? What is the profit maximizing Price for this firm? Exactly how much profit will this firm make if they sell the Quantity you answered for question at the pries you answered for question?

Solution

1) Average Fixed Cost is highest at small quantity of output. It declines as production increases. Average Fixed Cost is highest at quantity 100

2) Average Variable Cost is highest in the two stages of business i.e. at the start of the business and at the highest level of production. The decline in the middle stages occurs due to specialization and increase in output. Hence, Average Variable Cost is highest at quantities 100 and 800.

3) The industry shown is oligopolistic in nature with small number of sellers. Industry refers to oil industry.

4) Profit maximisation quantity is 400, where cost is very low.

5) Profit maximisation price is $4.