Consider the competitive firm whose MC, AC, AVC, AFC functions are shown in the following graph

Economics Dec 05, 2020

Consider the competitive firm whose MC, AC, AVC, AFC functions are shown in the following graph. If the market price is equal to $15, then the firm maximizes profits by producing _? $ MC AC AVC 40 35 18 12 AFC Output 100 180 220 O units more than 0 but less than 100 units more than 180 but less than 220 units more than 220 units more than 100 but less than 180 units
When a firm doubles both inputs (capital and labor), it produces more than twice of output, then we say the firm exhibits diminishing marginal return to labor diminishing marginal return to capital decreasing return to scales constant return to scales increasing return to scales

Expert Solution

1. More than 100 but less than 180 units

2. Increasing return to scale

Because firm is getting more than twice the output.

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