Suppose there are 7 firms in this industry, each of which has the cost curves previously shown. 100Demand90Industry's Short-Run Supply807060Equilibrium50403020103570105140175210245280315350QUANTITY (Thousands of jackets)At the current short-run market price, firms willin the short run. In the long run,PRICE (Dollars per jacket) For each price in the following table, use the graph to determine the number of jackets this firm would produce in order to maximize its profit. Assumethat when the price is exactly equal to the average variable cost, the firm is indifferent between producing zero jackets and the profit-maximizingquantity. Also, indicate whether the firm will produce, shut down, or be indifferent between the two in the short run. Lastly, determine whether it willmake a profit, suffer a loss, or break even at each price.PriceQuantity(Dollars per jacket)(Jackets)Produce or Shut Down?Profit or Loss?10Shut downLoss2030,000Shut downLoss3235,000ProduceLoss4037,500ProduceLoss5040,000ProduceBreak even6042,500ProduceProfit

here it is seen that the firms are not incurring any fixed cost. and the price is equal to average variable cost In current short run market price, firms will continue their operation as long as the average variable cost= $60 is greater than or equal to $60. The reason being the moment firms' market price decreases below average variable cost, it must be observed that firms are not in the condition of paying off even the basic variable cost. so the only option left for them will be shut down to stop further loss. as additional production will lead to lossIn the long run, the firms will earn zero profit. The reason behind this is - In long run the market will improve and thus their productivity will increase at higher prices and with an output they will be producing at a price = marginal revenue = marginal cost. But all this better market will attract other firms also. Now the market prices will start falling till every firm is earning their share of profits until a point comes when no one earns an profit. At this point firms whose prices are lower then average variable cost tend to shut down their operation.

Answered: At the current short-run market price,…

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At the current short-run market price, firms will in the short run. In the long run,

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Suppose there are 7 firms in this industry, each of which has the cost curves previously shown.

100
Demand
90
Industry's Short-Run Supply
80
70
60
Equilibrium
50
40
30
20
10
35
70
105
140
175
210
245
280
315
350
QUANTITY (Thousands of jackets)
At the current short-run market price, firms will
in the short run. In the long run,
PRICE (Dollars per jacket)

For each price in the following table, use the graph to determine the number of jackets this firm would produce in order to maximize its profit. Assume
that when the price is exactly equal to the average variable cost, the firm is indifferent between producing zero jackets and the profit-maximizing
quantity. Also, indicate whether the firm will produce, shut down, or be indifferent between the two in the short run. Lastly, determine whether it will
make a profit, suffer a loss, or break even at each price.
Price
Quantity
(Dollars per jacket)
(Jackets)
Produce or Shut Down?
Profit or Loss?
10
Shut down
Loss
20
30,000
Shut down
Loss
32
35,000
Produce
Loss
40
37,500
Produce
Loss
50
40,000
Produce
Break even
60
42,500
Produce
Profit

Defintion Defintion Curve that represents the graphical relationship between the total supply of goods and services and the price level in the economy. When the price level increases, producers tend to supply more of a product in the market to earn a higher revenue or vice versa.

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