Aa Aa 4. Profit maximisation in the cost-curve diagranm Consider a perfectly com
ID: 1144213 • Letter: A
Question
Aa Aa 4. Profit maximisation in the cost-curve diagranm Consider a perfectly competitive market for black hoodies. The following graph shows the daily cost curves of a firm operating this market. in PRICE (Dollars per hoodiel 20 Profit or Loss MC 16 ATC 12 AVC 10 20 30 40 50 60 QUANTITY IThousands of hoodies per day) Help Clear All hoodies per day. In the short run, at a market price of $18 per hoodie, this firm will choose to produce 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 $18 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 of 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 [diamondExplanation / Answer
At a market price of $18 per hoodie, this firm will choose to produce 45 thousand hoodies per day
The area of rectangle indicates that firm would have economic profit of $22500 (45000*5) per day
Price
Quantity
TR
TC
FC
VC
Profit
6
15000
90000
225000
135000
90000
-135000
12
30000
360000
360000
135000
225000
0
18
45000
810000
585000
135000
450000
225000
The shutdown price is $6 as it is the minimum average variable cost below which the firm would not be able to cover fixed costs too.
Price
Quantity
TR
TC
FC
VC
Profit
6
15000
90000
225000
135000
90000
-135000
12
30000
360000
360000
135000
225000
0
18
45000
810000
585000
135000
450000
225000
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