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.) Quantity (Dollars per sweater) (Sweaters) Price Total Revenue Fixed Cost Variable Cost Profit (Dollars) (Dollars) (Dollars) (Dollars) 12.50 135,000 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 per sweater.

Economics:
10th Edition
ISBN:9781285859460
Author:BOYES, William
Publisher:BOYES, William
Chapter23: Profit Maximization
Section: Chapter Questions
Problem 1E
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Suppose that the market for black sweaters is a competitive market. The following graph shows the daily cost curves of a firm operating in this
market.
(?
50
45
40
35
30
ATC
25
20
15
AVC
10
MC
8 10
2
4
12
14 16 18
20
QUANTITY (Thousands of sweaters)
PRICE (Dollars per sweater)
Transcribed Image Text:Suppose that the market for black sweaters is a competitive market. The following graph shows the daily cost curves of a firm operating in this market. (? 50 45 40 35 30 ATC 25 20 15 AVC 10 MC 8 10 2 4 12 14 16 18 20 QUANTITY (Thousands of sweaters) PRICE (Dollars per sweater)
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 sweater)
(Sweaters)
(Dollars)
(Dollars)
(Dollars)
(Dollars)
12.50
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
per sweater.
Transcribed Image Text: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 sweater) (Sweaters) (Dollars) (Dollars) (Dollars) (Dollars) 12.50 135,000 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 per sweater.
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