In the short run, at a market price of $8 per pan, this firm will choose to prod
ID: 1099429 • Letter: I
Question
In the short run, at a market price of $8 per pan, this firm will choose to produce On the previous graph, use the blue rectangle (circle symbols) to shade the area representing the firm's economic profit or loss if the market price is $8 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 For each price in the following table, calculate the firm's optimal quantity of units produced and determine the economic profit or loss if it produces at that quantity, using 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. If a firm shuts down, it incurs its fixed costs (FC) in the short run. In this case, the fixed cost of the firm producing frying pans is $81,000 per day. In other words, if it shuts down, the firm would suffer losses of $81,000 per day until its fixed costs end (such as the expiration of a building lease). This firm's shutdown price that is, the price below which it is optimal for the firm to shutdown -is $4.00 per pan.Explanation / Answer
a) In short run firm produces such that MC=MR. In competitive market MR = Price.MR= $8.
Hence firm produces 12000 pans.
b) In second question i can make a close estimate as you have only posted an image rather than the interactive graph.
ATC at 12000 pans is approx. $13.
Hence Total Costs= 12000*13
Revenue = 12000*8
Net Economic Loss = $60000.
c)
d.) The firm's shutdown price is $6. The minimum of AVC curve is $6. The point where AVC is minimum and also intersects with MC curve is the shutdown point.
At any price lower than $6 firm is better shutting down the operations as it can't even recover its running cost.
Price Quantity Total Revenue Fixed Cost Variable Cost Profit 6 9000 54000 81000 54000 -81000 12 18000 216000 81000 135000 0 18 27000 486000 81000 270000 135000