2. Should I try to get a price higher than $.80 per pound to improve profits? Wh

Question

2. Should I try to get a price higher than $.80 per pound to improve profits? Why or why not?
3. Assume the price is $.80 per pound, should I consider closing down? Why, or why not?
4. Explain which of the variables computed in the table and plotted on the graph represent the supplies and herbs for the Alex Lopez and sons company
5. Explain what the break-even point is. And where this is for the company.

Alex Lopez & Sons, Inc. -A hydroponic farm with eight greenhouses for producing tomatoes in a perfectly competitive industry competing with other greenhouse growers and field producers in the U.S. and Mexico. (In the short run). Part I. Compute the values for the blank cells. Expected TR MR Wholesale Q * Green- houses/ Market lbs, of Price Tomatoes Per lb FC Per/lb TC S Profit or AVC ATC MC loss Per/lb. Perlb. Perlb. $.80 1/25,000 $. 80 2/ 50,000.80 15,000 S37,000-17PDD 1Sp Dpep1.224ppp|25,000 125,000 $.80 D RRD 2D DD 14RP ,DDD 6/ 150,000 .80 7/ 175,000 $.80 8/ 200,000.80 66,000 121,ppp D-He D.LIS pop 1.32 sappp Experience indicates that their yield is 25,000 Ibs. of tomatoes perg in the formulas, e.g. 25,000, 50,000, 75,000... etc. lbs. instead of 1, 2, 3... etc. greenhouses. Part II. Graph- The Therefore, for all per lb. computations, use thousands for Q graph may be generated from EXCEL, or you may use the grid on the next page. Plot the per/lb. variables of Price MR, AVC, ATC, and MC from your table. Scale your numbers on the Y axis to accommodate the Price, MR, AVC, ATC, numbers in your table. Use the number of greenhouses from I to 8 on the X axis. Be sure to use titles for the graph, on the axes, and for the variable lines.

Explanation / Answer

1) To maximize profit operate where P = MC Thus P>=MC at Q= 17500 2) A higherprice would reduce profits. Because in a competitive setup the consumers will go to the firms charging a lower price and the q of those charging a higher price become zero. 3) AT P = 0.8 and Q = 17500 from (1) we see that the firm has positive profit equal to 5200. Thsu it should keep operating. 4) the supply is given by the Marginal cost curve above the minimum of AVC where it cuts the AVC

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