Suppose that price drops to $60 per unit. Use the following diagram to answer qu

Question

Suppose that price drops to $60 per unit. Use the following diagram to answer questions 3-5. Assume that units of output are indivisible (could only be produced as a whole, like 1 car, 2 cars, etc.) At what Q the company will minimize its losses? 3. At Q that you figured out in #3 calculate TR, TC, VC, FC, and losses. Show your work. Also, show FC and losses as areas on the diagram below. 4. How much money the company will be losing if it shuts down and sets Q to zero? Are these losses larger or smaller than those you've got in #4? 5. 200 MC 160 48150 140 130 128 120 13 114 100 90 70 sS 53 24 6 7810

Explanation / Answer

3. At optimum, P =60 = MC
This occurs at 4 units.

4. TR = 4 x 60 = 240
TC = ATC x 4 = 108 x 4 = 432
VC = AVC x 4 = 33 x 4 = 132
FC = TC - VC = 432 - 132 = 300
Loss = TC - TR = 432 - 240 = 192

5. Loss = FC = 300

Loss is larger than in 4.

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