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Intersects & Demand Graphs

Please explain step-by-step how to do these. thanks!

6) In the above diagrams assume the following: MC intersects AVC @ P= $8, Q=40 and MC intersects ATC @ P= $12, Q = 50. (Min MC =$ 4). In the market demand schedule on the right, at a price of $16, the quantity demanded = 6000, and at a price of $12 the quantity demanded rise to 7000.

a) What is the output of a typical firm when the market price is $16?

b) What is the lowest price at which the typical firm will stay in business in the short run?

c) If there are currently 100 firms in this industry. Draw the short run market supply curve.


Solution Preview

<br>The difficulty with this question is in cutting through the data and understanding it.
<br>Let us start with the question what do we want in part a ?
<br>To get the output of the firm when the price is $16, let us reinterpret the question: what is the quantity that the firm can sell when the market price is $16?
<br>Let us assume that the firm maximizes profit. Thus, marginal Cost = Marginal Revenue. The marginal revenue is the price the market is ready to pay which is $16. Marginal cost = ...

Solution Summary

Intersects & Demand Graphs are studied.