Econ exam #2

# The firm does not make any profit if the price is at

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The firm does not make any profit if the price is at \$2 D. As you can see in the chart above, there is an break even point at 2 units. After that they begin to make a profit at 3 units. If the firm only sold 1 or 2 units at a time then the firm would have to shut down. 2. a. The short run supply would occur at 6 units, and around \$35. This is the break- even point when ATC meets MC. b. Output 10 20 30 40 50 60 70 80 90 100 110 120 ATC 53 44 35 27 20 14 11 14 19 25 32 40 a.i. For outputs between 80-120 use plant a a.ii. For outputs between N/A use plant B (never used) a.iii. For outputs between 10-70 use plant C 3. a. b. ATC 3 has the lowest atc an output of 30 4. a. Market Price = \$200 Output Total Revenue Profit Tc= tfc+tvc tr-tc 0 200x0= \$0 \$ 0+300=300 0-300= \$-300 1 200x 1= \$200 100+300=400 200-400= \$-200 2 200x2=\$400 150+300=450 400-450= \$-50 3 200x3=\$600 210+300=510 600-510= \$90 4 200x4=\$800 290+300=590 800-590= \$210 5 200x5=\$1000 400+300=700 1000-700= \$300 6 200x6=\$1200 540+300=840 1200-840= \$360 7 200x7=\$1400 720+300=1020 1400-1020= \$380 8 200x8=\$1600 950+300=1250 1600-1250= \$350

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9 200x9=\$1800 1240+300=1540 1800-1540= \$260 10 200x10=\$2000 1600+300=1900 2000-1900= \$100 b. At a market price off \$200 the maximizing profit level would be at an ouput of 7 with a profit level of \$380. c. d. Economies of scale are the downsloping part of the long run ATC curve. As plant size increases a number of things will help lower the average cost of production, like labor specializtion, managerial specialization, and efficient capitol. Hiring more workers means jobs can be divided and subdivided. This way they can specialize and focuse on just one task instead of 4 or 5. Managerial specialization will help hire more managers so

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