Equilibrium price is $17 in a perfectly competitive market. For a perfectly competitive firm, MR = MC at 275 units of output. At 275 units, ATC is $19, and AVC is $13. The best policy for this firm is to __________ in the short run. Also, total fixed cost equals __________ for this firm.

Question

Quizplus · Accepted Answer

At 275 units, MR = MC = $17, and ATC = $19. Since ATC > AVC, the firm is making a loss of $2 per unit. However, since MR > AVC, the firm is still covering its variable costs and is better off continuing to produce in the short run. Total fixed cost = (ATC - AVC) x Q = ($19 - $13) x 275 = $1,650.

Equilibrium Price Is $17 in a Perfectly Competitive Market