Figure 8.5 Figure 8.5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 8.5.The minimum price the firm requires to produce output is
A)$20
B)$14
C)$5
D)It cannot be determined.

Question

Figure 8.5  Figure 8.5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 8.5.The minimum price the firm requires to produce output is
A)$20 
B)$14 
C)$5 
D)It cannot be determined.

Quizplus · Accepted Answer

The minimum price the firm requires to produce output is where the Marginal Cost (MC) curve intersects with the Average Variable Cost (AVC) curve, which is at a price of $5. At this price, the firm will be able to cover its variable costs and continue operating in the short run. Prices below $5 would cause the firm to shut down. The answer cannot be A or B because these prices are higher than the minimum required price. The answer cannot be D because we are given all the necessary information to determine the minimum price.

Figure 85 Figure 8