What level of output should this firm produce in the short run?

Question

I am having troble figuring out how to look at a graph and get the answer.

The graph has ATC above the D.

The MC and ATC intersect at 7.3 and $32

MC and AFC intersect at 6.3 and $20

MC and AVC intersect at 5 and $12

MC and D intersect at 7 and $28

Answer 1

I believe the answer is to produce not at total costs, and fixed costs.  The answer is where MC equals D.

remember that economists look at the margin, and we also want produce to cover all that is demanded in the short run.

To find profit go to the point where MC and D intersect.  Go down till you reach AVC subtract it, and then multiply the output.

If you produce where MC and AVC intersect. One would be making zero profit this is your minimum amount to produce.

Answer 2

If the demand curve D is always below the ATC curve there is no point for the firm to produce in the longrun because it will never recoup the fixed costs at all. It will incur economic loss. It can only hope that the demand curve will shift upward imn the longrun and enable it to recoup all fixed abd vaiable costs. If that hope exits, it may think of surving in the market by recouping at least the variable cost of production. So, the firm's AVC curve should at least be at some points not above the demand curve ( demand curve gives the price or the aveage revenue).. In the graph one has to look for the intersection between the MC and the MR curves. That is the profit maximizing point.

It is not clear from your question whether the demand curve in the graph is a straight line horintal curve as in perfect competition.. If it is such a demand curve thast is flat, the demand curve is not only the average revenue curve but also the marginal revenue curve. In that case, the intersection between MC and D (AR=MR)  at 7 and $28 is the shortrun profit maximization point and the firm will produce7 units of output and selling at a price 0f $28 per unit.

If however the D demand curve is a downward sloping curve, you must draw the marginal revenue (MR) curve that would be below the D curve and the profit maximizing short-run output will be given by the intersection of MC and MR curves.