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Practice Free Response. Answer Key. a). QTY TC MC ATC AVC TVC. ATC. S. 1. B. $9. $9. $6. A. D. 2. D. 1. Q. Q. 2. 1. Profit. 1- Firm. Market. MC. Price. Price. B. MR 2 = D 2. ______________. AVC. = D. MR. A.

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a)

QTY TC MC ATC AVC TVC


ATC

S

1

B

$9

$9

$6

A

D

2

D

1

Q

Q

2

1

Profit

1- Firm

Market

MC

Price

Price

B

MR2 = D2

______________

AVC

= D

MR

A

.…………..

$6

-----------------------

------------------

AFC

6

0

0

5

Quantity (market)

Quantity (firm)

b) i) 5 units => set MR = MC ii) zero economic profit (P-ATC )* Qty

d) i) 6 units set MR = MC ii) profit is $15 dollars

e) i) Shutdown when price $1.75 because P < AVC. ii) Exit long run P < ATC

f) i) Stay open if price is $2 or higher (min of AVC)

ii) Exit in long run unless price is $6 or higher (min of ATC)


10) MP crosses AP at max (as MP falls, worker efficiency falls)

11) MC crosses both AVC & ATC at min

12) Yes, MC determines change in AVC & ATC

13) Diminishing marginal returns ensures that MP must eventually fall => when MP falls => MC must rise (leads to upward sloping MC curve as workers become less efficient)


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