Equilibrium price is $22 in a perfectly competitive market. For a perfectly competitive firm, MR = MC at 200 units of output. At 200 units, ATC is $23, and AVC is $18. The best policy for this firm is to __________ in the short run. Also, this firm earns __________ of __________ if it produces and sells 200 units. Finally, the difference between total variable cost and total fixed cost for this firm is __________.

Question

Quizplus · Accepted Answer

Since the price ($22) is above AVC ($18) but below ATC ($23), the firm should continue to produce in the short run to minimize losses. The loss per unit is $1 ($23 - $22), and with 200 units produced, the total loss is $200. The difference between total variable cost and total fixed cost is given by the difference between ATC and AVC multiplied by the quantity produced, which is $5 ($23 - $18) times 200 units, equaling $1,000, not the options provided, making the correct answer "none of the above."

Equilibrium Price Is $22 in a Perfectly Competitive Market