pshotic166&5. Profit maximization and shutting down in the short runSuppose that the market for microwave ovens is a competitive market. The following graph shows the daily cost curves of a firm operating in thismarket.1009080ATC70604030AVC2010MC5 101520253035404550QUANTITY (Thousands of ovens)Σ50PRICE (Dollars per oven) 10MC+5101520253035404550QUANTITY (Thousands of ovens)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 graph to identify its total variable cost. Assume that if the firm is indifferent between producing and shutting down,it will produce. (Hint: You can select the purple points [diamond symbols] on the graph to see precise information on average variable cost.)QuantityTotal RevenueFixed CostVariable CostProfitPrice(Ovens)(Dollars)(Dollars)(Dollars)(Dollars)(Dollars per oven)1,600,00025.0070.001,600,0001,600,000100.00If 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).per oven.This firm's shutdown price-that is, the price below which it is optimal for the firm to shut down-isΣ20

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

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

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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