As discussed above, profit maximizing or loss minimizing
output is 9 units per firm.

Economic profit=(P-ATC)*Q=(68-50)*9=$162

b)

The price is $43,

An extremely competitive firm can increase its output as long as P>MC/P=MC is higher.

It is evident that MC is lower than Q=6’s price, but MC>P Q=7.

So, optimal output is 6 units.

At this output level AVC<p. so,="" firm="" will="" continue="" to="" produce="" in="" short="" run.

As discussed above, profit maximizing or loss minimizing
output is 6 units per firm.

Economic profit=(P-ATC)*Q=(43-47.50)*6=-$27 (Its a
loss)

c)

The price is $34,

We can see that AVC>P for each output level. So, firm
will shut down in short run.

Hence, output of a firm=0

Economic Profit=Total Revenue at nil output-Total Cost
at nil output=0-60=-$60 (Its a loss)

(Loss equals fixed cost in the event of shutting down)

d-e)

For every output level, we can see that AVC>34. In this case, the firm will close down if the price is less than 34. Fixed cost will equal the loss.

Part a and b describe how a firm can select the best output to price higher prices. We can develop following schedule.

f)

It is evident that for a price of $46, the quantity required is equal to the quantity provided. 10500. So,

Equilibrium price=$46

Equilibrium output for the industry=10500
units

For each firm=7 units

Profit per unit=(P-ATC)=46-47.14=-$1.14

(Its a loss of $1.14 per unit)

Per firm=(P-ATC)*Q=(46-47.14)*7=-$7.98

(Its a loss of $7.98 per firm)

In the short term, firm is losing money. The firm will exit the industry. So,

Industry will contract in the long run.
(Contract)