4. Again consider the firm whose cost and demand curves are shown to the right. If this firm produces the allocatively efficient amount of output it will: incur losses of 100.

   Allocative efficiency requires that Price = Marginal Cost, thus the firm must produce where Demand and Marginal Cost are equal. In this case, the firm must produce 50 units of output and sell at a price of 1, yielding a total revenue of 50. At this level of output, Average Total Cost = 3, yielding Total Cost of 50 x 3 = 150. The firm's loss is 150 - 50 = 100, shown as the red area to the right.

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