Given the graph below answer the following 1 Average Fixed C

Given the graph below answer the following:

1. Average Fixed Cost is the highest at what quantity?

2. Average Variable Cost is the highest at what quantity?

3. What kind of industry is this firm in?

4. What is the profit maximizing quantity for this firm?

5. What is the profit maximizing price for this firm?

6. Exactly how much profit will this firm make if they sell the quantity you answered for question 4 at the price you answered for question 5?

$RICe AC 49 Reven CURVe et 4 Gran ng (Qua 160 DO 700800

Solution

1.

Average fixed cost is the highest at 75 quantities. This is the starting point of AC in the left side.

2.

Average variable cost is the highest at 800 quantities. This is the finishing point of AC in the right side.

3.

The firm is in monopoly industry, since the demand curve is downward sloping showing price discrimination.

4.

Profit maximizing quantity is 100 quantities. This is the place where the marginal cost (MC) equals to marginal revenue (MR).

5.

Profit maximizing price is $1. This is the place where the marginal cost (MC) equals to marginal revenue (MR).