Figure 8.4 Figure 8.4 shows the cost and demand curves for a profit-maximising firm in a perfectly competitive market.
-Refer to Figure 8.4.If the market price is $30, should the firm represented in the diagram continue to stay in business?

Question

Figure 8.4  Figure 8.4 shows the cost and demand curves for a profit-maximising firm in a perfectly competitive market.
-Refer to Figure 8.4.If the market price is $30, should the firm represented in the diagram continue to stay in business?

Quizplus · Accepted Answer

At a market price of $30, the firm is producing output where marginal revenue (MR) equals marginal cost (MC), which is 8 units. The total cost (TC) at this output is $240, and the total revenue (TR) is $240. Thus, the firm is just covering its total costs and not making any profit. However, it is covering part of its fixed cost as the total cost includes a fixed cost component of $80. Therefore, the firm should continue to stay in business in the short run, as long as its total revenue is covering at least part of its fixed costs.

Figure 84 Figure 8