Aa5 Subject - economics 5. Profit maximization and shutting down in the short runSuppose that the market for blenders is a competitive market. The following graph shows the daily cost curves of a firm operating in this market.PRICE (Dollars per blender)1009080705040302010005MCATCAVC4010 15 20 25 30 35QUANTITY (Thousands of blenders)45H50(?) For each price in the following table, calculate the firm's optimal quantity of units to produce, and determine the profit or loss if it produces at thatquantity, using the data from the previous graph to identify its total variable cost. Assume that if the firm is indifferent between producing andshutting down, it will produce. (Hint: You can select the purple points [diamond symbols] on the previous graph to see precise information on averagevariable cost.)Price(Dollars per blender)25.0070.00100.00Quantity(Blenders)Total Revenue(Dollars)Fixed Cost(Dollars)1,600,0001,600,0001,600,000Variable Cost(Dollars)Profit(Dollars)If the firm shuts down, it must incur its fixed costs (FC) in the short run. In this case, the firm's fixed cost is $1,600,000 per day. In other words, if itshuts down, the firm would suffer losses of $1,600,000 per day until its fixed costs end (such as the expiration of a building lease).This firm's shutdown price-that is, the price below which it is optimal for the firm to shut down-isper blender.

Profit maximization refers to a situation in which a firm is earning maximum profit by producing at…

5. Profit maximization and shutting down in the short run Suppose that the market for blenders is a competitive market. The following graph shows the daily cost curves of a firm operating in this market. PRICE (Dollars per blender) 100 90 80 70 60 50 40 30 20 10 0 0 5 MC ATC AVC + 40 10 15 20 25 30 35 QUANTITY (Thousands of blenders) 45 50 (?)

5. Profit maximization and shutting down in the short run Suppose that the market for blenders is a competitive market. The following graph shows the daily cost curves of a firm operating in this market. PRICE (Dollars per blender) 100 90 80 70 60 50 40 30 20 10 0 0 5 MC ATC AVC + 40 10 15 20 25 30 35 QUANTITY (Thousands of blenders) 45 50 (?)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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