Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. If S3 is the market supply curve, then in the short run, the profit-maximizing level of output for a single firm in this market is ________ gallons per week.
A)0
B)200
C)400
D)8000

Question

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive.  If S3 is the market supply curve, then in the short run, the profit-maximizing level of output for a single firm in this market is ________ gallons per week.
A)0 
B)200 
C)400 
D)8000

Quizplus · Accepted Answer

If S3 is the market supply curve, then equilibrium price will be $10, and each firm will chose the level of output such at which marginal cost equals $10. This occurs at 200 gallons per week. Even though firms will earn an economic loss at this level of output, they will not shut down since $10 is greater than the minimum of the average variable cost curve.

Assume That All Firms in This Industry Have Identical Cost