4. Profit maximization in the cost-curve diagram 1A- Consider a perfectly competitive market for shirts. The following graph shows the daily cost curves of a firm operating in this market. PRICE Dollars per sht 20 16 12 Price (P) 56 MC 34 44 AD 72 OUTPUT(Theuns of art! Le Chow All In the short run, at a market price of $131 per shirt, this firm will choose to produce ATC 12 18 DWTH AVC On the previous graph, use the blue rectangle (dinde symbols) to shade the area representing the firm's economic profit or loss if the market price is $18 and the firm chooses to produce the quantity you already selected. Tool tip: Mouse over the shaded region on the graph to see its area. The area of this rectangle indicates that the firm would have Quantity (Q) Prater L For each price in the following table, calculate the firm's optimal quantity of units produced and determine the economic profit or loss if it produces at that quantity. Use the data from the previous graph to identify its total variable cost. Assume that if the firm is indifferent between producing and shutting down, it will produce. (Note: You can mouse over the purple points [diamond symbols) on the previous graph to see precise information on average variable cost.) Total Revenue (TR = PxQ) shirts per day. Fixed Cost (FC) $162,000 162,000 162,000 Variable Cost (VC) per day. Profit (TR-TC) If a firm shuts down, it incurs its fixed costs (FC) in the short run. In this case, the fived cost of the firm producing shirts is $162,000 per day. In other words, if it shuts down, the firm would suffer losses of $162,000 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 shirt.
4. Profit maximization in the cost-curve diagram 1A- Consider a perfectly competitive market for shirts. The following graph shows the daily cost curves of a firm operating in this market. PRICE Dollars per sht 20 16 12 Price (P) 56 MC 34 44 AD 72 OUTPUT(Theuns of art! Le Chow All In the short run, at a market price of $131 per shirt, this firm will choose to produce ATC 12 18 DWTH AVC On the previous graph, use the blue rectangle (dinde symbols) to shade the area representing the firm's economic profit or loss if the market price is $18 and the firm chooses to produce the quantity you already selected. Tool tip: Mouse over the shaded region on the graph to see its area. The area of this rectangle indicates that the firm would have Quantity (Q) Prater L For each price in the following table, calculate the firm's optimal quantity of units produced and determine the economic profit or loss if it produces at that quantity. Use the data from the previous graph to identify its total variable cost. Assume that if the firm is indifferent between producing and shutting down, it will produce. (Note: You can mouse over the purple points [diamond symbols) on the previous graph to see precise information on average variable cost.) Total Revenue (TR = PxQ) shirts per day. Fixed Cost (FC) $162,000 162,000 162,000 Variable Cost (VC) per day. Profit (TR-TC) If a firm shuts down, it incurs its fixed costs (FC) in the short run. In this case, the fived cost of the firm producing shirts is $162,000 per day. In other words, if it shuts down, the firm would suffer losses of $162,000 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 shirt.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:4. Profit maximization in the cost-curve diagram
1A-
Consider a perfectly competitive market for shirts. The following graph shows the daily cost curves of a firm operating in this
market.
PRICE Dollars per sht
20
16
12
Price
(P)
56
MC
34 44 AD 72
OUTPUT(Theuns of art! Le Chow All
In the short run, at a market price of $131 per shirt, this firm will choose to produce
ATC
12
18
DWTH
AVC
On the previous graph, use the blue rectangle (dinde symbols) to shade the area representing the firm's economic profit or loss
if the market price is $18 and the firm chooses to produce the quantity you already selected. Tool tip: Mouse over the shaded
region on the graph to see its area.
The area of this rectangle indicates that the firm would have
Quantity
(Q)
Prater L
For each price in the following table, calculate the firm's optimal quantity of units produced and determine the economic profit or
loss if it produces at that quantity. Use the data from the previous graph to identify its total variable cost. Assume that if the
firm is indifferent between producing and shutting down, it will produce. (Note: You can mouse over the purple points [diamond
symbols) on the previous graph to see precise information on average variable cost.)
Total Revenue
(TR = PxQ)
shirts per day.
Fixed Cost
(FC)
$162,000
162,000
162,000
Variable Cost
(VC)
per day.
Profit
(TR-TC)
If a firm shuts down, it incurs its fixed costs (FC) in the short run. In this case, the fived cost of the firm producing shirts is
$162,000 per day. In other words, if it shuts down, the firm would suffer losses of $162,000 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 shirt.
Expert Solution
Introduction:
Profit maximization is the process by which a company arranges its prices and cost structure to maximize profits. The organization's primary goal is to increase its profits. It aids in achieving the goals of optimizing business operations for profit maximization. The ultimate goal of any business is to generate a large amount of profit.
Step by step
Solved in 2 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education