Question 3 (16 pts):

Now consider Figure 4. The three horizontal lines shown there indicate the demand curves facing a profit-maximizing competitive firm which correspond to three possible market prices.

m: P,AE.AVC.HE o F E E Quantity For example, if price were H0, then the fn'nl could move anywhere along D1131. If H0 were the market price, then the rm would produce and sell quantity (OF 3 DE f 0G). Note that in this position._ the rm would be (earning a positive economic profit I just breaking even I incurring a loss). (4pts) If price happened to be J0 then the rnfs demand curve would be (D1 1) 1 t D 2 D 2 t D 3 D 3), and its maximum-prot output would be (OF! DE 1 0G) . It would then be (earning a positive economic profit i just breaking even i incurring a loss). (4pts) If price were K0, the lm's best possible position would be to produce (nothing i output 0F;r output 0E). In this position, its loss would be (less than i equal to f greater than) the amount of its xed cost. (4pts) If price fell so low that it did not even cover average variable cost, then the rm would do better to cease operations entirely. On Figure 8-5, the boundary of this shutdown price zone is marked by price (HO t J0 {K0 f W0). This price is (greater than 2' equal to a\" less than) the minimum level of (average variable i average xed) cost. (4pts)