Exhibit 22-4

Refer to Exhibit 22-4. The market equilibrium price is P₁ and the firm produces Q₁. At this level of output, average variable cost and average total cost are indicated by the dots. Given this situation, the firm is

Question

Exhibit 22-4

Refer to Exhibit 22-4. The market equilibrium price is P₁ and the firm produces Q₁. At this level of output, average variable cost and average total cost are indicated by the dots. Given this situation, the firm is

Quizplus · Accepted Answer

The firm is producing output where price (P₁) is equal to average total cost (ATC) and average variable cost (AVC), but below the minimum point of the average total cost curve. This means that the firm is taking a loss equal to the area of the rectangle formed by the distance between ATC and price multiplied by the quantity produced (area 2), plus the area of the triangle formed by the distance between AVC and ATC multiplied by the quantity produced (area 3). Therefore, the correct answer is B as the firm is taking a loss equal to area 2 + area 3.

Exhibit 22-4 ​ Refer to Exhibit 22-4. the Market Equilibrium Price Is P1 And

Exhibit 22-4 Refer to Exhibit 22-4. the Market Equilibrium Price Is P₁ And