4. Profit maximisation in the cost-curve diagram Imagine that the market for fry

Question

4. Profit maximisation in the cost-curve diagram Imagine that the market for frying pans is a competitive market. The following graph shows the daily cost Hint: After placing the rectangle on the graph, you can select an endpoint to see the coordinates of that poi 100 T 90 Profit or Loss 80 70 60 50 40 + 30 + 20 AVC 10 0 5 10 15 20 25 30 35 40 45 50 QUANTITY (Thousands of pans) In the short run, at a market price of $35 per pan, this firm will choose to produce pans per day On the preceding graph, use the ht

Explanation / Answer

Price below $25 will lead to the organization's shutdown.

When ATC (Average Total Cost), and, MC (Marginal Cost) intersect the price is the breakeven point or the point of normal profit.

At Quantity = 40 pans, price = $70

P = MC = minimum ATC at the break-even point.

1) 33 pans per day as per the graph - the quantity on the MC curve against price = $35

The rectangle will be formed by quantity 33 and, prices $35 and $25.

33*(35-25)

Loss = 330 per day

The firm will break even at Price = $70, quantity = 40; the firm attains profits beyond this.

Loss at producing 33 at $35

70*40 - 35*33 = 2800 - 1155 = $1645

Related Questions

Navigate

• Browse (All)
• Browse 4
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.