Question

Help and explain pls

Question: How much a frim produce and what are its economic profit levels (graphically) at P1 P2, P3, P4? ATC AVC 0 10 14 24 30 40 44 47 62 66 68

Answer 1

At constant price (horizontal demand curve), profit is maximized when Price intersects MC, and

Profit = Output (Q) x (P - ATC)

MC ATC HO------- LAV 0 10 14 24 30 40 44 47 62 66 68

(i) When price is P1, output is 47 and Profit = Area P1AEP2

(ii) When price is P2, output is 44 and Profit = Zero (Since P1 = ATC)

(iii) When price is P3, output is 40 and Loss = Area P2FCP3 (Since ATC > P3, there is a loss)

(iv) When price is P4, output is 30 and Loss = Area P4DGH (Since ATC > P4, there is a loss)