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 rompers.PRICE (Dollars per romper)5045403530252015105002MC27.5045.004ATCAVC68 10 12 14QUANTITY (Thousands of rompers)16PriceQuantity(Dollars per romper) (Rompers)12.5018 20Using 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.)?Total Revenue(Dollars)Fixed Cost Variable Cost(Dollars)(Dollars)135,000135,000135,000Profit(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 $135,000 per day. In other words, if itshuts 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-isper romper.

A perfectly competitive firm is a price taker, which means it takes the price set by the market…

Answered: 5. Profit maximization and shutting…

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.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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