Suppose that the market for dress shirts is a competitive market. The following graph shows the daily cost curves of a firm operating in this market. 50 18, 42 45 40 35 30 ATC 25 20 15 AVC 10 MC 2 4 6 8 10 12 14 16 18 20 QUANTITY (Thousands of shirts) 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 shirt) (Shirts) (Dollars) (Dollars) (Dollars) (Dollars) 12.50 7,500 135,000 27.50 135,000 45.00 135,000 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 $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 v per shirt. PRICE (Dollars per shirt)
Suppose that the market for dress shirts is a competitive market. The following graph shows the daily cost curves of a firm operating in this market. 50 18, 42 45 40 35 30 ATC 25 20 15 AVC 10 MC 2 4 6 8 10 12 14 16 18 20 QUANTITY (Thousands of shirts) 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 shirt) (Shirts) (Dollars) (Dollars) (Dollars) (Dollars) 12.50 7,500 135,000 27.50 135,000 45.00 135,000 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 $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 v per shirt. PRICE (Dollars per shirt)
Microeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter9: Price Takers And The Competitive Process
Section: Chapter Questions
Problem 16CQ
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Question
![Suppose that the market for dress shirts is a competitive market. The following graph shows the daily cost curves of a firm operating in this market.
50
18, 42
45
40
35
30
ATC
25
20
15
AVC
10
MC
2
4
6
8
10
12
14
16
18
20
QUANTITY (Thousands of shirts)
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 shirt)
(Shirts)
(Dollars)
(Dollars)
(Dollars)
(Dollars)
12.50
7,500
135,000
27.50
135,000
45.00
135,000
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 $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
v per shirt.
PRICE (Dollars per shirt)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F724eb754-2b50-41ef-baeb-d9687acf2531%2F6d0bb2cc-49ef-42ee-bec8-93f5b9087c60%2Fjpa0uk_processed.png&w=3840&q=75)
Transcribed Image Text:Suppose that the market for dress shirts is a competitive market. The following graph shows the daily cost curves of a firm operating in this market.
50
18, 42
45
40
35
30
ATC
25
20
15
AVC
10
MC
2
4
6
8
10
12
14
16
18
20
QUANTITY (Thousands of shirts)
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 shirt)
(Shirts)
(Dollars)
(Dollars)
(Dollars)
(Dollars)
12.50
7,500
135,000
27.50
135,000
45.00
135,000
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 $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
v per shirt.
PRICE (Dollars per shirt)
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