Suppose a firm has a production technology which results in the commonly seen outcome of "U-shaped" Average
Variable Cost (AVC), Average Total Cost (ATC) and Marginal Cost (MC). Further, suppose this firm sells its product in a market where the price of the good is externally set at P0. That is, the price is given to the firm and the firm cannot impact that price. Finally, for the entirety of this set of questions (7-9), assume we are in the Short Run for this firm.
In graphing responses to Questions 7 through 9, put $ on the vertical axis and lower-case q (firm output) on the horizontal axis.
Consider a scenario when the firm operates at a profit-maximizing level (produces a proft-maximizing quantity) yet (a) has negative profits at this outcome and (b) it does not choose to shut down.