Homework (Ch 14)5. Profit maximization and shutting down in the short runSuppose that the market for microwave ovens is a competitive market. The following graph shows the daily cost curves of a firm operating in thismarket.1009080ATC60504030AVC20MC10202530354045501015QUANTITY (Thousands of ovens)PRICE (Dollars per oven) 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 thatquantity, 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.)PriceQuantityTotal RevenueFixed CostVariable CostProfit(Dollars per oven)(Ovens)(Dollars)(Dollars)(Dollars)(Dollars)25.001,600,00070.001,600,000100.001,600,000If the firm shuts down, it must incur its fixed costs (FC) in the short run. In this case, the firm's fixed cost is $1,600,000 per day. In other words, if itshuts down, the firm would suffer losses of $1,600,000 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-isper oven.

Profit maximization refers to a situation in which a firm is earning maximum profit by producing at…

5. Profit maximization and shutting down in the short run Suppose that the market for microwave ovens is a competitive market. The following graph shows the daily cost curves of a firm operating in this market. 100 90 80 АТС 70 60 50 40 30 AVC 20 MC 10 25 30 35 40 45 50 5 10 15 20 QUANTITY (Thousands of ovens) PRICE (Dollars per oven)

5. Profit maximization and shutting down in the short run Suppose that the market for microwave ovens is a competitive market. The following graph shows the daily cost curves of a firm operating in this market. 100 90 80 АТС 70 60 50 40 30 AVC 20 MC 10 25 30 35 40 45 50 5 10 15 20 QUANTITY (Thousands of ovens) PRICE (Dollars per oven)

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 32CTQ: Your company operates in a perfectly competitive market. You have been told that advertising can...

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