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Chapter 8: Problem 20

What two lines on a cost curve diagram intersect at the zero-profit point?

Short Answer

Expert verified
The Marginal Cost curve (MC) and the Average Total Cost curve (ATC) are the two lines that intersect at the zero-profit point on a cost curve diagram.

Step by step solution

01

Define the cost curve diagram components

A cost curve diagram displays the costs of production alongside the quantity produced given different levels of output. It typically has three main components: the Total Cost curve (TC), the Total Revenue curve (TR), and the Marginal Cost curve (MC). Additionally, we have the Average Total Cost (ATC) curve and the Average Variable Cost (AVC) curve.
02

Identify the zero-profit point

The zero-profit point occurs where the firm's total costs equal its total revenues. In other words, the profit equals zero as there is no surplus of revenues over costs. At this point, the firm is breaking even, and it is the point of intersection between the Total Revenue and the Total Cost curves.
03

Intersecting curves at a zero-profit point

Although the zero-profit point is the intersection between the Total Revenue and Total Cost curves, in a cost curve diagram, we focus more on marginal and average costs. The point where the Marginal Cost curve intersects the Average Total Cost curve represents the zero-profit point, as this point signifies that the firm is maximizing its profits while covering all costs incurred during production. So, the answer to the exercise is: The two lines that intersect at the zero-profit point on a cost curve diagram are the Marginal Cost curve (MC) and the Average Total Cost curve (ATC).

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Most popular questions from this chapter

How does the average cost curve help to show whether a firm is making profits or losses?

The AAA Aquarium Co. sells aquariums for \(\$ 20\) each. Fixed costs of production are \(\$ 20 .\) The total variable costs are \(\$ 20\) for one aquarium, \(\$ 25\) for two units, \(\$ 35\) for the three units, \(\$ 50\) for four units, and \$80 for five units. In the form of a table, calculate total revenue, marginal revenue, total cost, and marginal cost for each output level (one to five units). What is the profit-maximizing quantity of output? On one diagram, sketch the total revenue and total cost curves. On another diagram, sketch the marginal revenue and marginal cost curves.

How does a perfectly competitive firm decide what price to charge?

A single firm in a perfectly competitive market is relatively small compared to the rest of the market. What does this mean? How "small" is "small"?

Productive efficiency and allocative efficiency are two concepts achieved in the long run in a perfectly competitive market. These are the two reasons why we call them "perfect." How would you use these two concepts to analyze other market structures and label them "imperfect?"
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