Figure 7-5 Figure 7-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 7-5.What is the minimum price the firm requires to produce output?
A) $20
B) $14
C) $5
D) It cannot be determined.

Question

Figure 7-5  Figure 7-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 7-5.What is the minimum price the firm requires to produce output?
A) $20 
B) $14 
C) $5 
D) It cannot be determined.

Quizplus · Accepted Answer

The minimum price the firm requires to produce output is equal to the minimum point on the long-run average cost (LRAC) curve, which is $5 in this case. At this price, the firm would earn zero economic profit, but would still be able to cover its production costs. Therefore, the best choice for the firm would be to produce where marginal cost equals price, which is also at the $5 price level.

Figure 7-5 Figure 7-5 Shows Cost and Demand Curves