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Consider the diagram below. At a selling price of $12 per unit, how much profit or loss is this perfectly competitive firm experiencing, and should they continue to produce or shut down temporarily?

To determine the profit or loss that this perfectly competitive firm is experiencing and whether they should continue to produce or shut down temporarily, we need to interpret the graph, which likely represents the firm's cost curves and market price.

### Key Points to Identify:
1. **Market Price**: The selling price given is $12 per unit.
2. **Cost Curves**: The graph likely shows:
   - Marginal Cost (MC) curve
   - Average Total Cost (ATC) curve
   - Average Variable Cost (AVC) curve

### Steps to Determine Profit or Loss:
1. **Identify the MC Curve**: This curve typically has a U-shape, rising after a certain point.
2. **Locate the ATC and AVC Curves**: The ATC is also typically U-shaped, and the AVC lies below the ATC.
3. **Determine the Output Level**: The firm will produce where the market price equals the MC, as long as the price covers the AVC.
4. **Compare Price to ATC at this Output Level**:
   - **Profit**: If the market price ($12) is above the ATC, the firm earns a profit per unit equal to $ P - ATC $.
   - **Loss**: If the market price is below the ATC but above the AVC, the firm incurs a loss but should continue to produce because it can cover its variable costs.
   - **Shutdown**: If the market price is below the AVC, the firm should shut down temporarily, as it cannot cover its variable costs.

### Analysis of the Diagram:
- The market price is given as $12. 
- Find where this price intersects the MC curve to determine the quantity produced.
- Check the ATC at this quantity.

### Conclusion Based on the Diagram:
- If $12 is below the ATC but above the AVC at the quantity where $12 equals MC, the firm is experiencing a loss but should continue to produce.
- If $12 is above the ATC, the firm is making a profit.
- If $12 is below the AVC, the firm should shut down.

Given that the curves are not labeled and the diagram is not clear enough for direct identification:
- **If the $12 line intersects the MC below ATC but above AVC**: Loss, continue to produce.
- **If the $12 line intersects below AVC**: Shutdown.

### Possible Questions:
1. How does the ATC curve look in relation to the $12 market price line?
2. What are the implications of the AVC being above or below $12?
3. What factors determine whether a firm should shut down in the short run?
4. How does the intersection of MC and market price determine the output level?
5. What is the significance of the ATC curve in profit maximization?

### Tip:
When analyzing cost curves, remember that the point where the price equals the marginal cost determines the quantity produced, while the relationship between the price and ATC determines profit or loss.

Understand how to analyze profit and loss in perfectly competitive markets using cost curves and market price. Explore the implications of market price intersections with marginal cost, average total cost, and average variable cost. Suitable for college-level economics students.

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