Refer to the graph below MC 50 ATC AVC 40 ro20 F 0 50 100 15

Refer to the graph below MC 50 ATC AVC 40 ro20 F 0 50 100 150 200 250 300 350 400 These are the cost curves for a perfectly competitive firm.At what level of output will the firm break even? O 250 O 300 O 100 O 350

Solution

The firm will break even when Price = AVC (average total cost).

For perfect competitors Price = marginal cost

The firm will break even where marginal cost = avc (average variable cost)

Therefore the firm will break even when the price = marginal cost = 40 and output is 250.

250.

For a firm\'s supply under perfect competition, a firm will maximize profits when it produces at that level
where Marginal cost = price
MC = P