Question

Sparkle is one firm of many in the market for toothpaste, which is in long-run equilibrium.

Indicate which of the following graphs accurately reflects Sparkle's demand curve, marginal revenue (MR) curve, average-total-cost (ATC) curve, and marginal-cost (MC) curve. 

The following graph shows Sparkle's demand curve, marginal-revenue (MR) curve, average-totalcost (ATC) curve, and marginal-cost (MC) curve.

Use the black point (plus symbol) to indicate Sparkle's profit-maximizing output and price.

The following graph shows Sparkle's demand curve, marginal-revenue (MR) curve, average-totalcost (ATC) curve, marginal-cost (MC) curve, and profit-maximizing output and price.

Suppose the government required Sparkle to produce the efficient level of output.

Which of the following describes what would happen to the firm and Sparkle's customers?

- Sparkle would earn positive profit and increase production, boosting consumer surplus.

- Sparkle would earn negative profit, forcing it to shut down, and Sparkle's customers would gain no consumer surplus.

- Sparkle would earn zero profit, and its customers would be just as well off as before.

Answer 1

if price is reduced, P < ATC, so
Sparkle would earn negative profit, forcing it to shut down, and Sparkle's customers would gain no consumer surplus.