The graph below summarizes the demand and costs for a firm that operates in a perfectlycompetitive market

 In the short run, the firm should produce that level of output, where MR = P =MC =$28. From the graph, it follows it sells 7 units. b. The firm is a price taker and should charge $28. c. The firm's average total costs is equal to $32, when it produces the profit-maximizing output of 7 units. Therefore, the total cost of producing 7 units is $(32*7), i. e., $224. d. At output level of 7 units, the firm's average variable costs is equal to $14, when it produces the profit-maximizing output of 7 units. Therefore, the total variable cost of producing 7 units is $(14*7), i. e., $98. e. Total Fixed Cost = Total Costs - Total Variable Costs = $224 -$98 =$126. f. Profits = Total Revenue - Total Costs = $(28*7) -$224 =-$28. g. If the firm shuts down, its Total Costs = Total Fixed Costs= $126. Since it shuts down, its Total Revenue = 0.Therefire, firm's profits = TR -TFC =-$126. h. Now since price is higher than Average Variable cost at 7 units of output, the firm is able to recoup more than its average variable cost. This implies it can recoup not only the entire average variable but a part of total fixed cost. We find the firm is making less losses, or less negative profits, by staying in business rather than shutting down. This firm should continue to operate in the long run.