Question

(B) Derive the MC, ATC, and AVC and calculate the values at the short run equilibrium output. (C) Calculate the producers’ surplus at the equilibrium output. (D) Find the output level that will make the profit of the firm zero.

Answer 1

B

1. We know, MC crosses ATC and AVC at their minimum points, i.e. at ATC = 10.75 and AVC = 7.66.
2. The AVC curve is U-shaped with its minimum point at 7.66 and the ATC curve is also U-shaped with its minimum point at 10.75. 

C

1.  If the Company is operating in a perfectly competitive industry, it will earn zero/normal profits and produce the output where P = MC, i.e., 6 units. Now, if it raises the price, consumers will shift to other companies and it will incur losses.

D

1. Zero Profits and 4 units.