2) Profit Maximization (. Consider a perfectly competitive market for Widgets. Suppose the market determines a market price of $40 and total quantity of 1,000,000 units per month. At this price the firm finds its profit maximizing quantity is 80 units per month. Average Total Cost is $60 and Average Variable Cost is $45 at this quantity. Is this firm earning economics profits or losses? Calculate fixed costs, should this firm stay open (produce 80 units) or close (produce zero units) in the short run?

2) Profit Maximization (. Consider a perfectly competitive market for Widgets. Suppose the market determines a market price of $40 and total quantity of 1,000,000 units per month. At this price the firm finds its profit maximizing quantity is 80 units per month. Average Total Cost is $60 and Average Variable Cost is $45 at this quantity. Is this firm earning economics profits or losses? Calculate fixed costs, should this firm stay open (produce 80 units) or close (produce zero units) in the short run?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter8: Perfect Competition

Section: Chapter Questions

Problem 41P: A computer company produces affordable, easy-to-use home computer systems and has fixed costs of...

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A computer company produces affordable, easy-to-use home computer systems and has fixed costs of 250. The marginal cost of producing computers is 700 for the first computer, 250 for the second, 300 for the third, 350 for the fourth, 430 for the fifth, 450 for the sixth, and 500 for the seventh. Create a table that shows the companys output, total cost, marginal cost, average cost, variable cost, and average variable cost. At what price is the zero-profit point? At what price is the shutdown point? If the company sells the computers for 500, is it making a profit or a loss? How big is the profit or loss? Sketch a graph with AC, MC, and AVG curves to illustrate your answer and show the profit or loss. If the firm sells the computers for 300, is it making a profit or a loss? How big is the profit or loss? Sketch a graph with AC, MC, and AVG curves to illustrate your answer and show the profit or loss.
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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…