You should do this problem in three steps. First: Fill in Table 1. Assume fixed cost is $1000 and price is $575. Second: Draw a graph of the firm's demand, marginal revenue, average variable cost, average total cost, and marginal cost curves on a piece of graph paper. Be sure to label the graph correctly. On the graph, indicate the break-even and shutdown points and the firm's short-run and long-run supply curves. Third: Calculate total profit in the space below, then answer questions a through d. (a) The minimum price the firm will accept in the short run is $_______. (b) The minimum price the firm will accept in the long run is $_______. (c) The output at which the firm will maximize profits is _______. (d) The output at which the firm will operate most efficiently is ________.

Question

Table 1:



Table 2:

Answer 1

Total profit= (Price - ATC) × output

= ($575 - $560) × 5.2

= $15 × 5.2

= $78 (Must be slightly over $75.)



(a) $324. (b) $558. (c) 5.2. (d) 5.15



Table 2: