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 to determine the firm's total variable cost, calculate the profit or loss associated with producing that quantity. Assume that if the firm is indifferent between producing and shutting down, it will choose to produce. (Hint: Select purple points [diamond symbols] on the graph to receive exact average variable cost information.) Price (Dollars per jumpsuit) 12.50 27.50 45.00 Quantity (Jumpsuits) Total Revenue (Dollars) Fixed Cost (Dollars) 135,000 135,000 135,000 Variable 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 $135,000 per day. In other words, if it shuts 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-is per jumpsuit.
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 to determine the firm's total variable cost, calculate the profit or loss associated with producing that quantity. Assume that if the firm is indifferent between producing and shutting down, it will choose to produce. (Hint: Select purple points [diamond symbols] on the graph to receive exact average variable cost information.) Price (Dollars per jumpsuit) 12.50 27.50 45.00 Quantity (Jumpsuits) Total Revenue (Dollars) Fixed Cost (Dollars) 135,000 135,000 135,000 Variable 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 $135,000 per day. In other words, if it shuts 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-is per jumpsuit.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:The following graph plots daily cost curves for a firm operating in the competitive market for jumpsuits.
PRICE (Dollars per jumpsuit)
50
45
35
25
20
15
10
0
0
2
MC
4
ATC
AVC
8
0
O Search
10
12
14
QUANTITY (Thousands of jumpsuits)
16
13 20
?
C
Transcribed Image Text:The following graph plots daily cost curves for a firm operating in the competitive market for jumpsuits.
PRICE (Dollars per jumpsuit)
50
45
35
25
20
15
10
0
0
2
MC
4
ATC
AVC
8
0
O Search
10
12
14
QUANTITY (Thousands of jumpsuits)
16
13 20
?
C
Expert Solution
Step 1
Types of costs:
A firm's total cost can be divided into two main categories-
- Fixed cost: The cost that incurs irrespective of the quantity produced as long as the firm keeps running
- Variable cost: The cost that incurs with the quantities of a product being produced
Variable costs can be of two types-
- Average cost: The cost per unit of output
Marginal cost: The additional cost incurred at each extra unit of output production
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