5. Profit maximization and shutting down in the short runThe following graph plots daily cost curves for a firm operating in the competitive market for designer handbags.908070VATC40AVCPRICE (Dollars per bag)1003020100MC0 1020 30 40 50 60QUANTITY (Thousands of bags)70 80 90 100? 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 todetermine the firm's total variable cost, calculate the profit or loss associated with producing that quantity. Assume that if the firm is indifferentbetween producing and shutting down, it will choose to produce. (Hint: Select purple points [diamond symbols] on the graph to receive exact averagevariable cost information.)Price(Dollars per bag)25.0040.0065.00Quantity(Bags)Total Revenue(Dollars)Fixed Cost(Dollars)520,000520,000520,000Variable 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 $520,000 per day. In other words, if itshuts down, the firm would suffer losses of $520,000 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 bag.

Firms operate in a competitive market based on customer demand and their cost structures. When the…

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 designer handbags. PRICE (Dollars per bag) 100 90 80 70 60 8 50 40 30 20 10 0 MC 0 10 D ATC AVC 20 30 40 50 60 70 QUANTITY (Thousands of bags) 80 90 100 ?

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 designer handbags. PRICE (Dollars per bag) 100 90 80 70 60 8 50 40 30 20 10 0 MC 0 10 D ATC AVC 20 30 40 50 60 70 QUANTITY (Thousands of bags) 80 90 100 ?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Price 8 7 6 5 3 I I I II 1 O Choose one: 10 11 12 13 MC 11/05/18 ATC AVC Quantity The graph shows the cost curves of a firm in a competitive industry. The market price is $4. In the short run, the firm should A produce the output at which MRMC and earn a profit. B. produce the output at which MR MC and suffer a loss. C. shut down the operation D. There is not enough information to answer the question.
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Round your answeis LU 2 UCUNTial plats. Output 1 3 4 5 6 www. Average Variable Cost 30 a. Complete above the table. Quantity: Break-even $ Average Total Cost 1 O Loss 140 80 63.33 56 56 57 65.43 ✔ $ Marginal Cost 110 30 20 30 34 Prev 56 62 116 b. What is the shutdown price? Shutdown price: $ c. If the market price of the product is $56, what quantity will Marshall's Meats produce? What will be its ✓:$ Total Cost $110 140 6 of 13 160 Quantity: d. If the market price of the product is $20, what quantity will Marshall's Meats produce? What will be its pre # 190 224 280 342 458 Next >
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