Question
Jamie is one producer in the perfectly competitive pearl industry. Their cost curves are shown below. Pearls sell for $100 and in maximizing profits, Jamie
Jamie is one producer in the perfectly competitive pearl industry. Their cost curves are shown below. Pearls sell for $100 and in maximizing profits, Jamie produces 1000 pearls per month. In the questions below you should copy this graph and then show the areas that each part is asking for. a. Find the area on the graph that illustrates the total revenue from selling 1000 units at $100 each.
b. Find the area on the graph that indicates the variable cost of producing these 1000 units. c. Find the area on the graph that indicates the fixed cost of producing these 1000 units. d. Add together the two areas from parts b and c to show the total cost of producing these 1000 units. e. Subtract the total cost from part d from total revenue found in part a to identify on the graph the area that represents profit. What would happen to this area in the long run and why? f. What label could you put on the perfectly elastic line at P=$100? g. What do you notice about where the marginal cost curve cuts the other cost curves? h. In the long run, what happens to AVC and ATC?
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