00:01
Okay, so we are given a scenario of a firm that decides to produce at the minimum average total cost.
00:08
So if we are going to draw the equilibrium in a monopolistically competitive market, then obviously we are going to have a representation of the revenues and the costs as well as the output.
00:28
We put output on the horizontal axis and we do have our origin.
00:35
Now, for a monopolistically competitive firm, we notice that the average revenue as compared to a monopoly is a bit flatter.
00:47
For the simple reason, obviously, there's many firms in this market.
00:51
So the average revenue curve is a bit flatter.
00:54
And when we look at the marginal revenue curve is actually downward slopping as well.
01:02
And when you look at the marginal cost curve, then the average total cost curve actually touches the marginal cost at the minimum point.
01:15
So we have the average total cost curve.
01:18
Now, according to this analysis, the firm actually produces at the minimum.
01:24
Of the atc.
01:25
And the minimum of the atc is basically right here, point where i'll illustrate with red.
01:32
But we understand that if there's a firm that is profit maximizing, then it will be at this point shown in blue to say the actual production that maximizes profit is actually going to be where marginal revenue is equal to marginal cost.
01:52
So this whole -shaded area will be profit.
01:56
So if it decides to produce at q1, we'll just call this q1.
02:01
I'll use the red ink to denote q1 and we have the blue ink to denote qo, which is the equilibrium point.
02:12
But let's find out based on the information which statement applies.
02:16
It says that q1, q1 exceeds the level of output at which there is a point of tangency between the demand curve and the average total cost curve.
02:29
Okay, so this cannot be true because the point of tangency does not exist between the atc and ar unless, of course, we're dealing with a loss making, for instance, a loss making monopolistically competitive firm.
02:47
Then let's basically look at the second statement...
