6. Deriving the short-run supply curve The following graph plots the marginal cost (MC) curve, average total cost (ATC) curve, and average variable cost (AVC) curve for a firm operating in the competitive market for jumpsuits. COSTS (Dollars) 80 72 64 56 48 40 32 ATC 24 16 8 AVC MC 0 0 8 16 24 32 40 48 56 64 72 80 QUANTITY (Thousands of jumpsuits) For every price level given in the following table, use the graph to determine the profit-maximizing quantity of jumpsuits for the firm. Further, select whether the firm will choose to produce, shut down, or be indifferent between the two in the short run. (Assume that when price exactly equals average variable cost, the firm is indifferent between producing zero jumpsuits and the profit-maximizing quantity of jumpsuits.) Lastly, determine whether the firm will earn a profit, incur a loss, or break even at each price. Price (Dollars per jumpsuit) 4 8 12 36 48 60 Quantity (Jumpsuits) Produce or Shut Down? Profit or Loss?
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### Step 1: Understanding the Graph - The graph plots three curves: Marginal Cost (MC), Average Total Cost (ATC), and Average Variable Cost (AVC). - The MC curve intersects the ATC and AVC curves at their lowest points, which is a standard characteristic in Show more…
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Akash M.
The figure shows the cost curves of a profit-maximizing perfectly competitive firm. a) If the market price equals $7, how much will the firm produce? b) If the market price equals $7, how much is the firm's average total cost, average variable, and marginal costs? c) If the market price equals $7, how much is the firm's total variable costs, and total fixed costs? d) If the market price equals $7, how much is the firm's total revenue and economic profit? e) If the market price equals $2, will this firm shut down in the short run? explain please. f) If the market price equals $2, what will happen in this perfect competitive market in the long run?
A perfectly competitive firm has the following short-run total cost: $$ \begin{array}{c|c} \text { Quantity } & \text { TC } \\ \hline 0 & \$ 5 \\ 1 & 10 \\ 2 & 13 \\ 3 & 18 \\ 4 & 25 \\ 5 & 34 \\ 6 & 45 \end{array} $$ Market demand for the firm's product is given by the following market demand schedule: $$ \begin{array}{c|c} \text { Price } & \text { Quantity demanded } \\ \$ 12 & 300 \\ 10 & 500 \\ 8 & 800 \\ 6 & 1,200 \\ 4 & 1,800 \end{array} $$ a. Calculate this firm's marginal cost and, for all output levels except zero, the firm's average variable cost and average total cost. b. There are 100 firms in this industry that all have costs identical to those of this firm. Draw the shortrun industry supply curve. In the same diagram, draw the market demand curve. c. What is the market price, and how much profit will each firm make?
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