Q1. Show a short run situation where a perfectly competitive firm is earning negative profit but deciding that it would be profitable to continue production for the short run. Include in your graph, ATC, AVC, MC, AR, P, MR. Designate the profit maximizing output as Q* and the price charged as P*.
Q2. Indicate on your graph above the output that would be considered productively (technically) efficient by labeling that output as QT.
Q3. Indicate on your graph above the output that would be considered socially (economically) efficient by labeling that output as QS.
Q4. Shade in the area for "loss" (label this area as "LOSS") and compare to the loss it would incur if the firm decided to shut down (label this area as "SHUT DOWN LOSS").
Q5. Would you say that this firm is relatively "capital intensive" or relative "labor intensive?" (Circle your choice). Explain.
Q6. By way of a logical argument explain why this firm inevitably produces an output that is socially efficient. Provide an explanation for each step of your proof.