Figure 9-9
Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 9-9.At price P₂,the firm would

Question

Figure 9-9
  Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 9-9.At price P₂,the firm would

Quizplus · Accepted Answer

At price P₂, the firm's marginal revenue (MR) equals its marginal cost (MC), which is lower than the average total cost (ATC) at that output level. Therefore, the firm is not covering all its costs, but it is still earning a contribution to its fixed costs. The firm would make a loss equal to the difference between price and ATC multiplied by the quantity produced. Thus, the firm would lose less than its fixed cost but still incur an economic loss.

Figure 9-9 Figure 9-9 Shows Cost and Demand Curves Facing