Question

The above diagram illustrates the short run cost curves for Sarah Mat, a rice farmer in Queensland. Calculate the profit or loss for Sarah Mat and, examine the key characteristics for perfect competition firm with reference to Sarah’s farm. (10 Marks)

Answer 1

Answer:

3500

Step-by-step explanation:

with reference to Sarah’s farm under the characteristics for perfect competition, the equilibrium of the firm will be at where the marginal cost curve intersects the marginal revenue or average revenue curves from below.

Under perfect competition AR = MR

as per given diagram equilibrium of the firm will be at where MR = AR = MC

with this intersection equilibrium quantity 500 rice ( Bags/month)

and the equilibrium price will be 40 (AUD)/20KG bag

Here ATC of the firm is less than its price, therefore the firm is making profits in the short-run.

Profit = Total revenue - Total cost

= P * Q - ATC * Q

= 40 * 500 - 33 * 500

= 20000 - 16500

= 3500

Hence, firm is making 3500 profit in the short-run