Assignment No. 3
Academic Year:1439-1440 H
Student grade: / 30
Level of the marks:
This Assignment must be submitted on Blackboard (WORD format only) via
the allocated folder.
Email submission will not be accepted.
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reduced for poor presentation. This includes filling your information on the
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Late submission will result in ZERO marks being awarded.
The work should be your own, copying from students or other resources will
result in ZERO marks.
Use Times New Roman font 12 for all your answers.
Use the graph below of a perfectly competitive firm’s cost functions to answer the following set
In the short run, what is the fixed cost for this firm? Explain your answer fully.(5 marks)
Find the break-even price and the shutdown price. (4 marks)
Should the firm operate if the market price was equal to $2? Why? (4 marks)
Suppose the market price of the good in the short-run is $12 per unit.
a. Does the firm maximize its profit by producing 50 units? Why? (2 marks)
b. If no, should the firm increase or decrease its quantity produced? (2 marks)
c. Which quantity maximizes the firm’s profit, given the market price. Explain your
answer fully. (3 marks)
5) Given the breakeven price, do you think that the firm is earning a positive or a negative
profit when the market price is equal to $12? Why? (2 marks)
6) Calculate the profit (loss) earned by the firm. (3 marks)
7) What do you think will happen on this market in the long-run? Will some existing firms
exit the market, or, on the opposite, new firms will enter the market? When does the
market reach a long-run equilibrium? (5 marks)
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