Convincing Features
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Question 1A
Using the axes as constructed below, depict marginal revenue and marginal cost curves that would support the conclusion that the optimal short-run output is q = 1000. Be sure to label all important values.
Question 1B
Is this a short-run equilibrium? Why or why not? Explain.
Question 2A
Reproduce your graph from Question 1 but add an average total cost curve to the picture in such a way that the firm is earning zero profits (π = 0).
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Question 2B
Does your graph in Question 2A depict a short-run equilibrium? If so, explain why. If not, explain why not.
Question 3A
Again, reproduce your graph from Question 1. For this question, depict a different ATC curve, one where the firm has negative profits (π < 0) at the profit-maximizing output of 1000. Add an additional average cost curve that will allow you to determine whether to shut down or keep producing at q = 1000. Graphically indicate the profits on your graph.
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Question 3B
Based on the graph you provided, should the firm produce q = 1000 in the short run or should it shut down, producing q = 0? Why? Please explain.
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