ECO100Y1 Lecture Notes - Lecture 21: Average Variable Cost, Average Cost, Profit Maximization
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Answer is e: in a perfectly competitive industry, the market price of the product is . Firm a is producing the output at which average total cost equals marginal cost, both of which are . Firm a should: contract output, expand output, leave output unchanged, increase its selling price, shut down operations. Answer is b: expand output (from q to q*, since p=mc at q*) If p>atc, the(cid:374) p>avc (cid:894)so (cid:862)shutdo(cid:449)(cid:374) poi(cid:374)t(cid:863) does (cid:374)ot (cid:374)eed to (cid:271)e (cid:272)he(cid:272)ked(cid:895) Insight: atc=avc only if fixed costs = 0. Profit-maximization in the short run: a perfectly competitive firm. If p
