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Frost Frost
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Posts: 303
A week ago

Figure 12-19




Refer to Figure 12-19. The figure above shows the cost curves of a perfectly competitive firm in the coffee market. Use the graph in Figure 12-19 to answer the following questions. Assume the market price is $3 per pound.

a.

What is the lowest price at which the coffee grower will supply output in the short run?

b.

In the diagram draw the firm's demand curve (label this "MR" for marginal revenue).

c.

What is the firm's profit-maximizing output?

d.

Is the firm earning a profit or a loss? Identify the area in the graph that represents the firm's
profit or loss.

e.

Explain how entry or exit will occur in the market to ensure that firms will break even in the
long run.
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Edition: 1st
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JjogbhfJjogbhf
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Posts: 288
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A week ago
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a.

$1.50 per pound. This represents the lowest point on the AVC curve, or the shut-down point.

b.

See the figure below.

c.

225. This is the output where price (MR) equals MC.

d.

The firm is earning a profit. See the figure below.




e.

Above normal profits attract new entrants into the industry, which will shift the industry
supply curve to the right and decrease the market price. This entry stops when all economic profits are eliminated and price equals average total cost.
1

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A week ago
Thank you for answering so quickly
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A week ago
Was feeling bored, my pleasure Grinning Face with Smiling Eyes
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