Suppose Veronica Sells Teapots in the Perfectly Competitive Teapot Market

question 5

Essay

Suppose Veronica sells teapots in the perfectly competitive teapot market. Her output per day and her costs are as follows:
Suppose the current equilibrium price in the teapot market is $15. To maximize profit, how many teapots will Veronica produce, what price will she charge, and how much profit (or loss) will she make? Draw a graph to illustrate your answer. Your graph should include Veronica's demand, ATC, AVC, MC, and MR curves, the price she is charging, the quantity she is producing, and the area representing her profit (or loss).

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Definitions:

Average Total Costs

The total costs (fixed and variable) of production divided by the quantity of output produced.

Average Fixed Costs

The total fixed costs divided by the quantity of output produced, indicating the cost per unit that does not change with output level.

Average Total Costs

The cost of producing each unit, calculated by dividing the entire production cost by the total number of units made.

Marginal Cost

The increase in cost that arises from producing one additional unit of a good or service.