5. Profit maximization and shutting down in the short run Suppose that the market for black leather purses is a competitive market. The following graph shows the daily cost curves of a firm operating in this market. 100 90 80 70 60 50 ATC 40 30 AVC 20 10 10 20 30 40 50 60 70 80 90 100 QUANTITY (Thousands of purses) 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.) Price Quantity Total Revenue Fixed Cost Variable Cost Profit (Dollars per purse) (Purses) (Dollars) (Dollars) (Dollars) (Dollars) 25.00 520,000 40.00 520,000 65.00 520,000 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 $520,000 per day. In other words, if it shuts down, the firm would suffer losses of $520,000 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 purse. PRICE (Dollars per purse)
5. Profit maximization and shutting down in the short run Suppose that the market for black leather purses is a competitive market. The following graph shows the daily cost curves of a firm operating in this market. 100 90 80 70 60 50 ATC 40 30 AVC 20 10 10 20 30 40 50 60 70 80 90 100 QUANTITY (Thousands of purses) 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.) Price Quantity Total Revenue Fixed Cost Variable Cost Profit (Dollars per purse) (Purses) (Dollars) (Dollars) (Dollars) (Dollars) 25.00 520,000 40.00 520,000 65.00 520,000 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 $520,000 per day. In other words, if it shuts down, the firm would suffer losses of $520,000 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 purse. PRICE (Dollars per purse)
Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN:9781285165875
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter14: Firms In Competitive Markets
Section: Chapter Questions
Problem 4PA
Related questions
Question
![5. Profit maximization and shutting down in the short run
Suppose that the market for black leather purses is a competitive market. The following graph shows the daily cost curves of a firm operating in this
market.
100
90
80
70
60
50
ATC
40
30
AVC
20
10
10
20
30
40
50
60
70
80
90
100
QUANTITY (Thousands of purses)
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.)
Price
Quantity
Total Revenue
Fixed Cost
Variable Cost
Profit
(Dollars per purse)
(Purses)
(Dollars)
(Dollars)
(Dollars)
(Dollars)
25.00
520,000
40.00
520,000
65.00
520,000
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 $520,000 per day. In other words, if it
shuts down, the firm would suffer losses of $520,000 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 purse.
PRICE (Dollars per purse)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F932a3e08-262b-40f3-9bce-40d498124cf1%2F2c4a4891-8ac3-47d2-a850-f4a6d7dd38cd%2Fcawq44a.png&w=3840&q=75)
Transcribed Image Text:5. Profit maximization and shutting down in the short run
Suppose that the market for black leather purses is a competitive market. The following graph shows the daily cost curves of a firm operating in this
market.
100
90
80
70
60
50
ATC
40
30
AVC
20
10
10
20
30
40
50
60
70
80
90
100
QUANTITY (Thousands of purses)
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.)
Price
Quantity
Total Revenue
Fixed Cost
Variable Cost
Profit
(Dollars per purse)
(Purses)
(Dollars)
(Dollars)
(Dollars)
(Dollars)
25.00
520,000
40.00
520,000
65.00
520,000
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 $520,000 per day. In other words, if it
shuts down, the firm would suffer losses of $520,000 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 purse.
PRICE (Dollars per purse)
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