Answer to Question #54578 in Macroeconomics for onkamogetse

Question

assume that a perfectly competitive market, firm costs and revenue a;
marginal cost=average variable cost at $20
marginal cost=average total cost at $30
marginal cost=average revenue at$25
with the aid of a diagram explain how the firm will determine the profit maximizing level of output, state price this firm will charge and explain how the firm determined the price, given information above should this firm produce in the short run? why or why not?, will this firm earn a profit or a loss?why? evaluate 3 factors that influence economic development.

Answer 1

MC = AVC = 20 USD
MC = ATC = 30 USD
MC = AR = MR = P = 25 USD
The profit maximizing level of output is determined at the quantity, for which MR = MC = P, so this firm will maximize profits (minimize losses) at P = MR = MC = 25 USD. The firm will produce in the short run, because AVC < P < ATC (20 < 25 < 30), so this firm earn a loss as P < ATC.