5. Profit maximization and shutting down in the short run The following graph plots daily cost curves for a firm operating in the competitive market for rompers. PRICE (Dollars per romper) 50 45 40 35 30 ATC 25 20 20 15 7.5, 12.5 10 10 AVC MC 5 0 0 2 4 6 8 10 12 14 16 18 20 20 QUANTITY (Thousands of rompers) (?) Using the following table, for each price level, calculate the optimal quantity of units for the firm to produce. Using the data from the graph to determine the firm's total variable cost, calculate the profit or loss associated with producing that quantity. Assume that if the firm is indifferent between producing and shutting down, it will choose to produce. (Hint: Select purple points [diamond symbols] on the graph to receive exact average variable cost information.) Price (Dollars per romper) Quantity (Rompers) Total Revenue Fixed Cost (Dollars) (Dollars) Variable Cost (Dollars) Profit (Dollars) 12.50 135,000 27.50 45.00 135,000 135,000 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 $135,000 per day. In other words, if it shuts down, the firm would suffer losses of $135,000 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-is per romper.
5. Profit maximization and shutting down in the short run The following graph plots daily cost curves for a firm operating in the competitive market for rompers. PRICE (Dollars per romper) 50 45 40 35 30 ATC 25 20 20 15 7.5, 12.5 10 10 AVC MC 5 0 0 2 4 6 8 10 12 14 16 18 20 20 QUANTITY (Thousands of rompers) (?) Using the following table, for each price level, calculate the optimal quantity of units for the firm to produce. Using the data from the graph to determine the firm's total variable cost, calculate the profit or loss associated with producing that quantity. Assume that if the firm is indifferent between producing and shutting down, it will choose to produce. (Hint: Select purple points [diamond symbols] on the graph to receive exact average variable cost information.) Price (Dollars per romper) Quantity (Rompers) Total Revenue Fixed Cost (Dollars) (Dollars) Variable Cost (Dollars) Profit (Dollars) 12.50 135,000 27.50 45.00 135,000 135,000 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 $135,000 per day. In other words, if it shuts down, the firm would suffer losses of $135,000 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-is per romper.
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter8: Perfect Competition
Section: Chapter Questions
Problem 23RQ: What two lines on a cost curve diagram intersect at the shutdown point?
Related questions
Question
Transcribed Image Text:5. Profit maximization and shutting down in the short run
The following graph plots daily cost curves for a firm operating in the competitive market for rompers.
PRICE (Dollars per romper)
50
45
40
35
30
ATC
25
20
20
15
7.5, 12.5
10
10
AVC
MC
5
0
0
2
4
6
8
10
12
14
16
18
20
20
QUANTITY (Thousands of rompers)
(?)
![Using the following table, for each price level, calculate the optimal quantity of units for the firm to produce. Using the data from the graph to
determine the firm's total variable cost, calculate the profit or loss associated with producing that quantity. Assume that if the firm is indifferent
between producing and shutting down, it will choose to produce. (Hint: Select purple points [diamond symbols] on the graph to receive exact average
variable cost information.)
Price
(Dollars per romper)
Quantity
(Rompers)
Total Revenue
Fixed Cost
(Dollars)
(Dollars)
Variable Cost
(Dollars)
Profit
(Dollars)
12.50
135,000
27.50
45.00
135,000
135,000
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 $135,000 per day. In other words, if it
shuts down, the firm would suffer losses of $135,000 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-is
per romper.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc651550b-99c3-4c5a-a431-233dafffc77e%2F546a2f74-ed61-47f5-97e5-140c3cf86943%2Fjifbsed_processed.png&w=3840&q=75)
Transcribed Image Text:Using the following table, for each price level, calculate the optimal quantity of units for the firm to produce. Using the data from the graph to
determine the firm's total variable cost, calculate the profit or loss associated with producing that quantity. Assume that if the firm is indifferent
between producing and shutting down, it will choose to produce. (Hint: Select purple points [diamond symbols] on the graph to receive exact average
variable cost information.)
Price
(Dollars per romper)
Quantity
(Rompers)
Total Revenue
Fixed Cost
(Dollars)
(Dollars)
Variable Cost
(Dollars)
Profit
(Dollars)
12.50
135,000
27.50
45.00
135,000
135,000
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 $135,000 per day. In other words, if it
shuts down, the firm would suffer losses of $135,000 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-is
per romper.
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