Label the graph for this perfectly (or purely) competitive cherry producer Not all boxes will contain labels and not all labels will be used. The average total cost (ATC) and marginal cost (MC) curves are already labeled.Quantity Produced Minimum ATC Losses Profits Price Q at min ATC
The correct answer and explanation is:
In a perfectly competitive market, the price is determined by the intersection of supply and demand curves. In this case, a cherry producer operates under this structure, so let’s break down and label the graph step-by-step.
Correct Labels:
- Quantity Produced: This is represented on the horizontal axis and shows how many cherries the producer is supplying.
- Price: This label corresponds to the market price, which is constant for a perfectly competitive firm. This price is where the firm’s marginal cost (MC) curve intersects the market price line.
- ATC (Average Total Cost): The ATC curve represents the cost per unit of output at different quantities. It is typically U-shaped.
- MC (Marginal Cost): The MC curve shows the additional cost of producing one more unit of output. The MC curve intersects the ATC curve at its lowest point, where the firm is producing at the most efficient output level.
- Q at min ATC: This is the quantity of output produced where the ATC curve is at its minimum. This is the point of productive efficiency, where the firm produces at the lowest cost per unit.
- Profits: If the price is above the minimum ATC, the firm will make profits. This is the area between the price line and the ATC curve, from Q = 0 to the quantity produced.
- Losses: If the price is below the minimum ATC, the firm will incur losses. This occurs if the price line intersects below the minimum ATC curve.
Graph Explanation:
In a perfectly competitive market, firms will enter or exit the industry depending on whether they are making profits or losses. If the price is above the minimum ATC, firms make a profit. If the price is below the minimum ATC, firms will experience losses, and eventually, some firms will exit the market.
The equilibrium for a perfectly competitive firm occurs where the price line is equal to the marginal cost (MC) curve and intersects the ATC curve. At this point, the firm is producing at the most efficient level (the quantity at minimum ATC). If the price equals the minimum ATC, the firm breaks even, earning normal profits (no economic profit). If the price is greater than the minimum ATC, the firm earns positive profits.
In the long run, firms will adjust to the equilibrium where price equals minimum ATC, resulting in zero economic profit for all firms in the market.