Use the following graph to answer Questions 2227 MC ATC AVC

Use the following graph to answer Questions 22-27. MC ATC AVC Ps Quantity 22. At a price of Pl, at what output level would a perfectly competitive firm produce? a. Q1 b. Q2 c. Q3 23. At a price of P2, at what output level would a perfectly competitive firm produce? a. Q1 b. 02 c. Q3 24. At a price of P3, at what output level would a perfectly competitive firm produce? a. Q b. Q2 c. Q3 25. Looking at the above graph, an economic profit would be earned at what market price? a. P b. P2 c. P3 26. Using the above graph, what is the shut-down price? a. Pl b. P2 c. P3 27. Using the above graph, what is the break-even price? a. P b. P2 ?.??

Solution

22) A In oerfectly competition P=MC thus Q1 units of output will be produced.

23) B Perfecty competitive firm produces at a point where P=MC=ATC. Thus Q2 unit will be produced.

24)C. Q3 units will be produced but perfectly competitive firms will not be at their equilibrium

25)C. Economic profit is earned whenever price is greater than min of ATC. Thus P3 will give positive economic peofit to a firm.

26)A. Firm shut down price is min of AVC. Thus P=min of AVC=P1

27)B. Breakeven is at a point where P=Min of ATC. Firms earns zero economic profit and total revenue equals total cost.