Solve the follwing: (My answers could be wrong!) 6. Profit maximization in the c

Question

Solve the follwing: (My answers could be wrong!)

6. Profit maximization in the cost-curve diagram Consider a competitive market for shirts. The following graph shows the daily cost curves of a firm operating in this market. In the short run, at a market price of $8 per shirt, this firm will choose to produce 12,000 shirts per day. On the previous graph, use the blue rectangle (circle symbols) to shade the area representing the firm?s profit or loss if the market price is $8 and the firm chooses to produce the quantity you already selected. Tool tip: Mouse over the shaded region on the graph to see its area. The area of this rectangle indicates that the firm would have an economic loss of $60,000 per day. For each price in the following table, calculate the firm?s optimal quantity of units produced and determine the profit or loss if it produces at that quantity. Use the data from the previous graph to Identify its total variable cost. Assume that if the firm is indifferent between producing and shutting down, it will produce. (Note: You can mouse over the purple points [diamond symbols] on the previous graph to see precise information on average variable cost.) Price (Dollars per shirt) $6 12 18 Output (Shirts) 9,000 18,000 27,000 Total Revenue (Dollars) $54,000 216,000 486,000 Fixed Cost (Dollars) $81,000 81,000 81,000 Variable Cost (Dollars) Profit (Dollars) If a firm shuts down, it incurs its fixed costs (FC) in the short run. In this case, the fixed cost of the firm producing shirts is $81,000 per day. In other words, if it shuts down, the firm would suffer losses of $81,000 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 shirt.

Explanation / Answer

12000

economic loss 60000

shut down price is $12, below this price firm will incure losses.

Price output Total revenue fixed cost variable cost profit Total cost Ac 6 9000 54000 81000 54000 -81000 135000 15 12 18000 216000 81000 135000 0 216000 12 18 27000 486000 81000 270000 135000 351000 13

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