This problem should be done in four steps. First, fill in the table directly below. Assume that fixed cost is $100 and price is $79. Second, on the graph paper draw the graphs of the firm's demand, marginal revenue, average variable cost, average total cost, and marginal cost curves. Be sure you label the graph correctly. Indicate the firm's short-run and long-run supply curves, and the break-even and shutdown points. Third, calculate total profit in the space below and then answer questions A-D. Fourth, complete the second table.
A. The minimum price the firm would accept in the short run would be $___________.
B. The minimum price the firm would accept in the long run would be $___________.
C. The output at which the firm would operate most efficiently would be ___________.
D. The output at which the firm would maximize profits would be ___________.
Total Profit = (price - ATC) × output
= ($79 - $78) × 5.55
= $1 × 5.55
= $5.55
a. $56 (must be under $56.25)
b. $77.50 (must be under $78)
c. 5.5
d. 5.55
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