Question

You must provide 3 different graphs ( 1 graph for each price)

(a) At a product price of $52, will this firm produce in the short run? Explain. What will its profit or loss be? Calculate the profit or loss from the MR = MC approach. Provide a graph revealing your AFC, AVC, ATC, MR, Price, AR, Demand, and where MC intersects each.

(b) At a product price of $28, will this firm produce in the short run? Explain. What will its profit or loss be? Calculate the profit or loss from the MR = MC approach. Provide a graph revealing your AFC, AVC, ATC, MR, Price, AR, Demand, and where MC intersects each.

(c)   At a product price of $22, will this firm produce in the short run? Explain. What will its profit or loss be? Calculate the profit or loss from the MR = MC approach. Provide a graph revealing your AFC, AVC, ATC, MR, Price, AR, Demand, and where MC intersects each.

(1) Total product	(2) Total var. cost	(3) Total Fixed	(4) Total cost	(5) AFC	(6) AVC	(7) ATC	(8) MC
0	$    0	$40	$____	$_____	$_____	$_____	$_____
1	55	$40	_____	_____	_____	_____	$_____
2	75	$40	_____	_____	_____	_____	_____
3	90	$40	_____	_____	_____	_____	_____
4	110	$40	_____	_____	_____	_____	_____
5	135	$40	_____	_____	_____	_____	_____
6	170	$40	_____	_____	_____	_____	_____
7	220	$40	_____	_____	_____	_____	_____
8	290	$40	_____	_____	_____	_____	_____

Answer 1

• TC=TFC+TVC
• AC=TC/Total Product
• MC = TC for n unit - TC for n-1 unit
• TR=AR x Total Product
• AR=MR

Part 1 Price = AR= Demand Curve = MR=52

According to MR=MC approach, at price = 52, 7 units will be produced and as all the costs are below the AR=MR curve, in the short run this firm will produce and also earn a profit of 104

Part 2 Price = AR= Demand Curve = MR=28

According to MR=MC approach, at price = 28, 5 units will be produced and as at least AVC is being covered if not below the AR, in the short run this firm will produce but make a loss of 35

Part 3 Price = AR= Demand Curve = MR=22

According to MR=MC approach, at price = 22, intersection happens at 4 units but as not even AVC is being covered, in the short run this firm will not produce and it will shut down if the firm shuts down only loss it will make is of 40 which is the fixed cost but if it produces 4 units, it will make a loss of 62, which is worse and so it is better that firm shuts down.