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If an imperfectly competitive firm is producing a level of output where marginal cost is equal to marginal revenue, marginal revenue is below average variable cost, and price is equal to average total cost, then the firm is :
- a)in long-run equilibrium.
- b)in short-run equilibrium.
- c)minimizing short-run average total cost.
- d)breaking even.
Correct answer is option 'C'. Can you explain this answer?
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If an imperfectly competitive firm is producing a level of output wher...
When a firm produces a level of output where marginal cost is equal to marginal revenue (MC=MR), it is maximizing its profits or minimizing its losses in the short run.
This is because at the point where MC=MR, the firm is producing the output level where the additional revenue from producing one more unit (MR) is equal to the additional cost of producing that unit (MC).
This is because at the point where MC=MR, the firm is producing the output level where the additional revenue from producing one more unit (MR) is equal to the additional cost of producing that unit (MC).
However, whether the firm is minimizing short-run average total cost (SRATC) depends on whether SRATC is at its minimum point or not.
If the SRATC curve is at its minimum point at the output level where MC=MR, then the firm is indeed minimizing SRATC
But if the SRATC curve is not at its minimum point at the output level where MC=MR, then the firm is not minimizing SRATC.
In this case, the firm could potentially reduce its costs by producing a different output level that would minimize SRATC
For an imperfectly competitive firm producing a level of output where marginal cost is equal to marginal revenue, marginal revenue is below average variable cost, and the price is equal to the average total cost, then the firm is minimizing short-run average total cost.
Hence the correct answer is minimizing short-run average total cost.
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If an imperfectly competitive firm is producing a level of output wher...
Short-Run Equilibrium of an Imperfectly Competitive Firm
In an imperfectly competitive market, firms have some degree of market power and can influence the price of their products. This means that they face a downward-sloping demand curve and have the ability to set prices to some extent.
1. Marginal Cost (MC) equals Marginal Revenue (MR)
When a firm is producing at a level where marginal cost is equal to marginal revenue (MC = MR), it means that the firm is maximizing its profits. This is because marginal cost represents the cost of producing an additional unit of output, while marginal revenue represents the additional revenue earned from selling that unit. At the point where MC = MR, the firm is producing the optimal level of output to maximize its profits.
2. Marginal Revenue (MR) is below Average Variable Cost (AVC)
If marginal revenue is below average variable cost (MR < avc),="" it="" implies="" that="" the="" firm="" is="" incurring="" losses="" on="" each="" additional="" unit="" produced.="" average="" variable="" cost="" represents="" the="" variable="" cost="" per="" unit="" of="" output.="" when="" marginal="" revenue="" is="" below="" average="" variable="" cost,="" it="" means="" that="" the="" firm="" is="" not="" generating="" enough="" revenue="" to="" cover="" its="" variable="" costs="" and="" is="" therefore="" incurring="" />
3. Price equals Average Total Cost (ATC)
When the price is equal to average total cost (P = ATC), it means that the firm is covering both its variable and fixed costs. Average total cost represents the total cost per unit of output, including both variable and fixed costs. When price equals average total cost, the firm is earning zero economic profit, which means that it is breaking even.
Conclusion: Minimizing Short-Run Average Total Cost (SRATC)
Given the conditions that marginal cost equals marginal revenue (MC = MR), marginal revenue is below average variable cost (MR < avc),="" and="" price="" equals="" average="" total="" cost="" (p="ATC)," the="" firm="" is="" in="" a="" short-run="" equilibrium.="" in="" this="" equilibrium,="" the="" firm="" is="" not="" making="" any="" economic="" profit="" but="" is="" able="" to="" cover="" all="" its="" costs,="" including="" both="" variable="" and="" fixed="" />
Since the firm is producing at a level where marginal cost equals marginal revenue, it is maximizing its profits. However, since marginal revenue is below average variable cost, the firm is incurring losses on each additional unit produced. The firm is able to cover its variable and fixed costs because the price is equal to average total cost.
Therefore, the correct answer is option 'C': the firm is minimizing short-run average total cost.
In an imperfectly competitive market, firms have some degree of market power and can influence the price of their products. This means that they face a downward-sloping demand curve and have the ability to set prices to some extent.
1. Marginal Cost (MC) equals Marginal Revenue (MR)
When a firm is producing at a level where marginal cost is equal to marginal revenue (MC = MR), it means that the firm is maximizing its profits. This is because marginal cost represents the cost of producing an additional unit of output, while marginal revenue represents the additional revenue earned from selling that unit. At the point where MC = MR, the firm is producing the optimal level of output to maximize its profits.
2. Marginal Revenue (MR) is below Average Variable Cost (AVC)
If marginal revenue is below average variable cost (MR < avc),="" it="" implies="" that="" the="" firm="" is="" incurring="" losses="" on="" each="" additional="" unit="" produced.="" average="" variable="" cost="" represents="" the="" variable="" cost="" per="" unit="" of="" output.="" when="" marginal="" revenue="" is="" below="" average="" variable="" cost,="" it="" means="" that="" the="" firm="" is="" not="" generating="" enough="" revenue="" to="" cover="" its="" variable="" costs="" and="" is="" therefore="" incurring="" />
3. Price equals Average Total Cost (ATC)
When the price is equal to average total cost (P = ATC), it means that the firm is covering both its variable and fixed costs. Average total cost represents the total cost per unit of output, including both variable and fixed costs. When price equals average total cost, the firm is earning zero economic profit, which means that it is breaking even.
Conclusion: Minimizing Short-Run Average Total Cost (SRATC)
Given the conditions that marginal cost equals marginal revenue (MC = MR), marginal revenue is below average variable cost (MR < avc),="" and="" price="" equals="" average="" total="" cost="" (p="ATC)," the="" firm="" is="" in="" a="" short-run="" equilibrium.="" in="" this="" equilibrium,="" the="" firm="" is="" not="" making="" any="" economic="" profit="" but="" is="" able="" to="" cover="" all="" its="" costs,="" including="" both="" variable="" and="" fixed="" />
Since the firm is producing at a level where marginal cost equals marginal revenue, it is maximizing its profits. However, since marginal revenue is below average variable cost, the firm is incurring losses on each additional unit produced. The firm is able to cover its variable and fixed costs because the price is equal to average total cost.
Therefore, the correct answer is option 'C': the firm is minimizing short-run average total cost.
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If an imperfectly competitive firm is producing a level of output where marginal cost is equal to marginal revenue, marginal revenue is below average variable cost, and price is equal to average total cost, then the firm is :a)in long-run equilibrium.b)in short-run equilibrium.c)minimizing short-run average total cost.d)breaking even.Correct answer is option 'C'. Can you explain this answer?
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If an imperfectly competitive firm is producing a level of output where marginal cost is equal to marginal revenue, marginal revenue is below average variable cost, and price is equal to average total cost, then the firm is :a)in long-run equilibrium.b)in short-run equilibrium.c)minimizing short-run average total cost.d)breaking even.Correct answer is option 'C'. Can you explain this answer? for UGC NET 2024 is part of UGC NET preparation. The Question and answers have been prepared according to the UGC NET exam syllabus. Information about If an imperfectly competitive firm is producing a level of output where marginal cost is equal to marginal revenue, marginal revenue is below average variable cost, and price is equal to average total cost, then the firm is :a)in long-run equilibrium.b)in short-run equilibrium.c)minimizing short-run average total cost.d)breaking even.Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for UGC NET 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for If an imperfectly competitive firm is producing a level of output where marginal cost is equal to marginal revenue, marginal revenue is below average variable cost, and price is equal to average total cost, then the firm is :a)in long-run equilibrium.b)in short-run equilibrium.c)minimizing short-run average total cost.d)breaking even.Correct answer is option 'C'. Can you explain this answer?.
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