Draw a short run situation for perfectly competitive firm

Reference no: EM13743526

1. Draw a Short Run situation for perfectly competitivefirm earning economic losses but decides that it is more profitable to produce in the short run. Indicate each of the following curves: D, P, AR, MR, SRATC, SRAVC and the supply curve. Indicate the price (label it P*) that the firm charges and the output produced (label it Q*). Clearly show the area for the TR and TC by indicating on your graph the area that shows total revenue (shade it and label it as TR) and total cost of production (shade it and label it as TC). Indicate the loss if the firm were to continue producing (shade it and label it as LOSS). Indicate the loss if the firm were to shut down (shade it and label is as SHUT DOWN LOSS). Show the area of consumer surplus (shade it a different color and label it as CS).

2. Indicate on your graph the output that would be considered productively (technically) efficient by labeling that output as QT.PROVE that a perfectly competitive firm ALWAYS PRODUCES WITH TECHNICAL EFFICIENCY IN THE LONG RUN.

3. Indicate on your graph the output that would be considered allocatively (economically) efficient by labeling that output as QA. PROVE that a perfectly competitively firm ALWAYS PRODUCES WITH ALLOCATIVE EFFICIENCY IN THE LONG RUN.

4. The consumer surplus present in perfectly competitive industry represents technical efficiency / allocative efficiency (circle your choice). Explain your choice.

Reference no: EM13743526

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