This This Question: 1 pt Isabela grows pumpkins. Her average variable cost (AVC)

Question

This This Question: 1 pt Isabela grows pumpkins. Her average variable cost (AVC), average total cost (ATC), and marginal cost (MC) of production are lustrated in the figure to the right MC Assume the market for pumpkins is perfectly compettive and that the market price is $5.00 per box. isabella wil earn a profit of S thousand. (Enter your response rounded to two decenal places) What will Isabella's proft be if she shuts down in the short run and produces nothing? Isabella's profit will be S thousand. (Enter your response rounded to two decimal places) Quansity (boxes in thousands)

Explanation / Answer

At a price of $5, the marginal cost and price line meet at 1000 boxes. ATC at this level is $7.00 so the profit at this level of profit maximization is actually a loss and this is equal to (5 - 7)*1000 = -2 thousand.

When produce nothing, her loss will be the fixed cost. Now fixed cost is given by

AFC = ATC - AVC

FC/Q = ATC - AVC = 7 - 4 = 3 at 1000 boxes

Hence fixed cost = 3*1000 = $3000.

This implies his loss when he produces nothing is 3 thousand.

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