The diagram above represents the equilibrium position of a firm in a perfectly competitive industry. Study it carefully and answer the questions that follow...

Answer Details

(a)

i. Equilibrium output is 50kg and equilibrium price is $20.00.

(ii)

Firm's profit = TR-TC
TR = 50kg x $20.00 = $1000.00
TC = 50kg x $12.00 = $600.00
      = $1000.00-$600.00
Profit = $400.00

OR

Profit = (AR- AC) x Q
= ($20.00-$12.00) x 50
= $8.00x 50
= $400.00

(iii)

Abnormal/economic/supernormal profit: This is because the profit is earned at a point where the price (AR) is greater than AC.

(b)

The average revenue function is horizontal because, in perfect competition, AR which is also the price is constant/fixed.

(c)

(i) When MC is less than ATC, ATC is falling

(ii) When MC is equal to ATC, ATC is at its minimum.

(iii) When MC is greater than ATC, ATC s rising