Question
The firm Narwhals R Us produces food for narwhals. The business is operating in a competitive industry and experiences the following: marginal revenue = $7
The firm Narwhals R Us produces food for narwhals. The business is operating in a competitive industry and experiences the following:
- marginal revenue = $7
- marginal cost = marginal revenue at $7
- marginal cost = average variable cost at $4
- marginal cost = average total cost at $6
(a) Draw an accurately labeled graph of this firm's production with MC, MR, AVC, and ATC all represented.Label the profit-maximizing quantity Qpm.
(b) Explain how to determine the profit-maximizing level of production.
(c) If the average total cost (ATC) is $5 at the point that MC = AVC, what is the average fixed cost (AFC) at that point?
(d) Is the firm earning economic profit or incurring a loss? Explain.
(e) On your graph from part (a), shade the area of the firm's profit or loss.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started