Question

5. Profit maximization and shutting down in the short run

Suppose that the market for wind chimes is a competitive market. The following graph shows the daily cost curves of a firm operating in this market.
 
IMG 1
 
For each price in the following table, calculate the firm's optimal quantity of units to produce, and determine the profit or loss if it produces at that quantity, using the data from the graph to identify its total variable cost. Assume that if the firm is indifferent between producing and shutting down, it will produce. (Hint: You can select the purple points [diamond symbols] on the graph to see precise information on average variable cost.)
 
*Points on the purple line are (1, 14) (4, 10.5) (6, 10) (8, 10.5) (12, 16) (15, 24) (18, 34)
 
IMG 2
 
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 $44,000 per day. In other words, if it shuts down, the firm would suffer losses of $44,000 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 wind chime? ($10.00, $16.00, $20.00, $40.00)
36
32
28
24
ATC
16
12
AVC
8
MC
4
2
4
8
10
12
14
16
18
20
QUANTITY (Thousands of wind chimes)
40
20
PRICE (Dollars per wind chime)
View transcribed image text
Expand
Price
Quantity
Total Revenue
Fixed Cost
Variable Cost
Profit
(Dollars per wind chime)
(Wind chimes)
(Dollars)
(Dollars)
(Dollars)
(Dollars)
10.00
44,000
16.00
44,000
40.00
44,000
View transcribed image text
Expand

Expert Answer

Want to see the step-by-step answer?

Check out a sample Q&A here.

Want to see this answer and more?

Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*

*Response times may vary by subject and question complexity. Median response time is 34 minutes for paid subscribers and may be longer for promotional offers.
Tagged in
Business
Economics

Microeconomics

Related Economics Q&A

Find answers to questions asked by students like you.

Q: Suppose an industry is composed of six firms. Four firms have sales of $10 each, and two firms have ...

A: 4 firms have sale of = $ 10 Total sale = 10 *4 = 40 There are two more firms having sales of = $ 5 e...

Q: . Do you consider yourself a member of any brand communities (formal or informal)? If so, what effec...

A: first of all brand community is nothing but admirers of a brand having social connections. i am admi...

Q: (a) Determine the aggregated supply curve of the 10 following firms assuming that they act as price ...

A: The question is based on the Stackelberg competition and Aalborg portland is the Stackelberg leader ...

Q: Italy’s 60 million inhabitants woke up Tuesday under an unprecedented nationwide quarantine, an effor...

A: AD or aggregate demand is sum of consumption, investment, government spending and net exports. Aggre...

Q: Assume that two nations Oceania and Plutonia are identical in every respect. What recommendations wo...

A: A market is the place where the buyers and sellers interact with each other and the exchange of good...

Q: The town of Chefsmeadow has 100 residents. Each resident has a car. Each car produces $30 worth of p...

A: Total Residents = 100 Total Cars = 100 Per Person Per Car Cost of the Pollution  = $30 Total Cost to...

Q: It costs a baker a fixed cost of $420 and a variable cost of $2.10 per cupcake. A cupcake is sold fo...

A: According to guidelines, the first 3 subparts needs to be done.     Marginal cost is u shaped and pa...

Q: The market for a standard-sized cardboard container consists of two firms: CompositeBox and Fiberboa...

A: Merger A merger is an agreement that amalgamates two existing companies into one new company. There ...

Q: A profit-maximizing firm in a competitive market is currently producing 90 units of output. It has a...

A: The following information is given: Output = 90 units, Average revenue = 46, Fixed cost = $270, Aver...

Transcribed Image Text

36 32 28 24 ATC 16 12 AVC 8 MC 4 2 4 8 10 12 14 16 18 20 QUANTITY (Thousands of wind chimes) 40 20 PRICE (Dollars per wind chime)

Price Quantity Total Revenue Fixed Cost Variable Cost Profit (Dollars per wind chime) (Wind chimes) (Dollars) (Dollars) (Dollars) (Dollars) 10.00 44,000 16.00 44,000 40.00 44,000