The diagram below shows my cost curves next month for producing various quantities of ornamental weathervanes which I sell in a perfectly competitive market. Things haven't been going so well in my business lately, and l'm trying to decide whether to continue producing next month (to stay open) or to shut down, even though I won't be able to sell my weathervane factory (plant and equipment) in the next month or two so will be stuck with mortgage costs and payments on my equipment. It's clear that the market price for the type of weathervanes I produce will be Pw = $75 next month. MC ATC Pw AVC $125 $100 $ 75 $ 50 $ 25 Qw 100 200 300 400 500 a) Should I shut down or stay open? Explain your answer fully and carefully. b) If I stay open, will I have economic profits, economic losses, or zero economic profits or losses? Illustrate this carefully in the diagram (which you will need to redraw). Explain what your diagram shows.

The diagram below shows my cost curves next month for producing various quantities of ornamental weathervanes which I sell in a perfectly competitive market. Things haven't been going so well in my business lately, and l'm trying to decide whether to continue producing next month (to stay open) or to shut down, even though I won't be able to sell my weathervane factory (plant and equipment) in the next month or two so will be stuck with mortgage costs and payments on my equipment. It's clear that the market price for the type of weathervanes I produce will be Pw = $75 next month. MC ATC Pw AVC $125 $100 $ 75 $ 50 $ 25 Qw 100 200 300 400 500 a) Should I shut down or stay open? Explain your answer fully and carefully. b) If I stay open, will I have economic profits, economic losses, or zero economic profits or losses? Illustrate this carefully in the diagram (which you will need to redraw). Explain what your diagram shows.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter5: Investment Decisions: Look Ahead And Reason Back

Section: Chapter Questions

Problem 5.6IP

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