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 per day. 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.) Price Quantity Total Revenue (TR = R x 0) Fixed Cost (FC) $162,000 Variable Cost (VC) Profit (TR = IC) (Q) 16 12 162,000 162,000 If a firm shuts down, it incurs its feed costs (FC) in the short run. In this case, the feed cost of the firm producing shirts is $167,000 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 tor shut down-is per shirt.
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 per day. 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.) Price Quantity Total Revenue (TR = R x 0) Fixed Cost (FC) $162,000 Variable Cost (VC) Profit (TR = IC) (Q) 16 12 162,000 162,000 If a firm shuts down, it incurs its feed costs (FC) in the short run. In this case, the feed cost of the firm producing shirts is $167,000 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 tor shut down-is per shirt.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Answer all parts
Transcribed Image Text:4. Profit maximization in the cost-curve diagram
A Aa
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
HC
16
12
AVC
12
AD 72
24 34
OUTPUT (Thousands of shirts!
Chow All
In the short run, at a market price of $18 per shirt, this firm will choose to produce
shirts per day.
On the previous graph, use the blue rectangle (circle 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
per day.
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.)
Price
Quantity
(Q)
Total Revenue
(TR = F x Q)
Fixed Cost
(FC)
$162,000
Variable Cost
(VC)
Profit
(TR = TC)
(P)
56
162,000
162,000
18
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
$167,000 per day. In other words, if it shuts down, the firm would suffer losses of $162,000 per day until as 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.
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