This market form has firms with very high start up costs for

This market form has firms with very high start up costs for marketing and advertising This market form will only do well in the long run if market demand is INELASTIC This market form has firms with excess capacity in the long run. Answer questions (26) through (30) by looking at the average cost, marginal cost and demand curves for firm X shown below 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 is 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 (29) at the price You answered for question (30)?

Solution

Q29. Profit-maximizing level of output or quantity is that quantity or output corresponding to which marginal revenue curve and marginal cost curve intersects each other.

As per given figure, marginal cost (MC) curve and marginal revenue (MR) curve are intersecting each other corresponding to output of 100 units.

So, profit-maximizing quantity for this firm is 100 units.

Q30. The price corresponding to profit-maximizng output with reference to demand curve is the profit-maximizing price.

With reference to demand curve, price corresponding to 100 units (profit-maximizing quantity) is $12 per unit.

So, profit-maximizing price is $12 per unit.

Q31. Quantity (as per Q29) = 100 units

Price (as per Q30) = $12 per unit

Average cost corresponding to 100 units is $4 per unit.

Calculate Total revenue -

Total Revenue = Price * Quantity = $12 * 100 = $1,200

Calculate Total cost -

Total cost = Average cost * Quantity = $4 * 100 = $400

Calculate Profit -

Profit = Total revenue - Total cost = $1,200 - $400 = $800

Thus, the firm will make a profit of $800.