MC AC AVC 34 30 16 10 AF Output 50 100 120

Question 27
Consider the firm whose MC, AC, AVC, AFC functions are shown in the following graph. (The following is a description of the figure: This figure is a two-axis graph; in the horizontal line we measure output q, and in the vertical line dollars $; there are four curves. The first, MC starts at a positive level when q=0; more precisely, MC(0) is greater than 16 and lower than 30; then MC is decreasing for values of q in between 0 and 50; at 50 MC has a minimum; this minimum is MC(50)=10; after q=50, MC is increasing; in particular MC(100)=16, MC(120)=30. The second curve, AVC, starts at the same level of MC(0); it is decreasing when q is between 0 and 100; in this range AVC is above MC; at q=100, AVC crosses MC; more precisely, AVC(100)=MC(100)=16; for q>100, AVC is increasing and below MC. The third curve, AC, has a positive asymptote at zero, that is, it grows to plus infinity when q is very small; AC is decreasing when q is in between 0 and 120; in this range is above MC; AC(100)=34; AC and MC cross at q=120; more precisely, AC(120)=MC(120)=30; for q>=120, AC is increasing, below MC and above AVC.)

If the output price is equal to $8, then the firm maximizes profits by producing?

120 units

25 units

50 units

0 units

100 units