In the graph, at a market price of ₹24, the firm A firm's short-run cost curves. AVC is lowest at ₹6 (point S, 3 units); AC is lowest at ₹15 (point B, 4 units); the rising MC curve passes through S and B. A price line is drawn at ₹24.

In the graph, at a market price of ₹24,…

In the graph, at a market price of ₹24, the firm

Question 21

HardOriginal question

In the graph, at a market price of ₹24, the firm

A firm's short-run cost curves. AVC is lowest at ₹6 (point S, 3 units); AC is lowest at ₹15 (point B, 4 units); the rising MC curve passes through S and B. A price line is drawn at ₹24.

shuts down, since ₹24 is above minimum AVCCorrect answerYour answerproduces at the lowest point of ACCorrect answerYour answerproduces where MC = ₹24 and earns supernormal profit, since ₹24 is above minimum ACCorrect answerYour answermakes a loss but stays openCorrect answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer C

Correct answer: C

The firm goes up its MC curve to where MC = ₹24.
At that output AC is below ₹24 (its minimum is ₹15), so price exceeds AC: supernormal profit.

Concept: Output and profit at a high price
Typical timeTypical: 100 s
Your timeYours: —

The rule this testsProfit maximisation and the firm's supply

Practise this chapter →

Ten questions from Perfect Competition & Supply, at your own pace.

Practise this chapter →

Ten questions from Perfect Competition & Supply, at your own pace.

In the graph, at a market price of ₹24, the firm

Question 21

Explanation