Reference no: EM132488519

1. Suppose your boss comes to you with the following information - at the current level of Output, Q (Q = 100), Marginal Cost, MC = $7.00, Average Variable Cost, AVC = $5.00, and Average Total Cost, ATC = $9.00. The firm faces a downward sloping Demand Curve, D0 of P = 18 - 0.0857[Q], which has a Marginal Revenue curve, MR equal to P = 18 - 0.1714[Q].

i. Given the information given to you draw a graph approximating what the entire Marginal Cost, MC curve along with the Average Variable Cost, AVC curve, and Average Total Cost, ATC curve would look like showing all the appropriate relationship(s) among these three curves. AND, include the Demand curve, D0 and Marginal Revenue curve, MR as well.

ii. If the Marginal Cost, MC curve and the Marginal Revenue, MR curve intersect at a price of $4.80, find the level of Quantity, Q that would represent the firm's Profit Maximizing level of output. Explain carefully if the firm is currently operating (1) at its PROFIT MAXIMIZING position - why or why not? (2) if not, would the firm want to increase or decrease output to arrive at its Profit Maximizing position?

iii. At the firm's PROFIT MAXIMIZING position, is the firm operating at a positive economic profit, a negative economic profit, or at a zero-economic profit? Explain carefully why is this the case?

iv. At the firm's PROFIT MAXIMIZING level of economic profit (as determined in part iii) what would be the behaviour in the MARKET: market entry, market exit, or neither? Why or why not?