Tom\'s T-shirts is a price taker that has the following costs: Output (t-shirts/
ID: 2507010 • Letter: T
Question
Tom's T-shirts is a price taker that has the following costs:
Output (t-shirts/hour)
Total cost ($/hour)
0
5
1
20
2
26
3
35
4
46
5
59
a. If t-shirts sell for $7.50 each, what is Tom's profit-maximizing output?
b. What is Tom's shutdown point?
c. Over what price range will Tom leave the t-shirt industry?
d. Over what price range will other firms with costs identical to Tom's enter the industry?
e. What is the price of a t-shirt in the long run?
Your answers should be fully justified and all necessary calculations shown in each case.
Output (t-shirts/hour)
Total cost ($/hour)
0
5
1
20
2
26
3
35
4
46
5
59
Explanation / Answer
a) 0 because price is below average variable cost at all production levels.
b) When price drops below minimum average variable cost, which is $10 at output level of 3.
c) When price goes above average total cost which is 11.5 at an output level of 4.
d) 11.5 which is equal to the average total cost at the bottom of the curve.