Chapter 60, Problem 1FRQ

To determine

Graph showing a perfectly competitive firm in long run.

Explanation of Solution

  

In the above diagram, MC is the marginal cost which is sloping upward, ATC is the average total cost, and MR is the marginal revenue which is also the price line. Q* is the maximizing profit output level where the average total cost and price are equal. The marginal cost curve cuts the average total cost at its minimum level.

Economics Concept Introduction

Introduction:

A perfectly competitive firm’s average total cost curve and average variable cost curve are U-shaped, and the price line is horizontal which means the firm can sell as much as output at the given price. The firm attains equilibrium at the intersection of the average total cost curve, marginal cost curve, and marginal revenue curve (Price line).