Suppose that the market for cashmere sweaters is a competitive market. The following graph shoes the daily dost curves of a firm operating in this market

For each price in the following table, calculate the firm's optimal quantity of units to produce, and determine the profit or loss if it reduces 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 the firm shuts down, it must incur its fixed costs (PC) in the short run. In this case, the firm?s fixed cost is 5520,000 per day. In other words, if it shuts down, the firm would suffer losses of $520,000 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 shut down is per sweater.

? $25.00

? $40.00

? $65.00

? $80.00

Transcribed Image Text:

PRICE (Dollars per sweater) 100 90 80 70 60 50 40 30 20 10 0 0 MC 10 ATC AVC O + 20 30 40 50 60 70 QUANTITY (Thousands of sweaters) 80 90 100 (c. (? A* 10,000 20,000 30,000 40,000 50,000 70,000 90,000 Price (Dollars per sweater) 25.00 40.00 65.00 Quantity (Sweaters) A* A* A* Total Revenue (Dollars) Fixed Cost (Dollars) 520,000 520,000 520,000 Variable Cost (Dollars) Profit (Dollars) PRICE (Dollars per sweater) 100 90 80 70 60 50 40 30 20 10 0 0 MC 10 ATC AVC O + 20 30 40 50 60 70 QUANTITY (Thousands of sweaters) 80 90 100 (c. (? A* 10,000 20,000 30,000 40,000 50,000 70,000 90,000 Price (Dollars per sweater) 25.00 40.00 65.00 Quantity (Sweaters) A* A* A* Total Revenue (Dollars) Fixed Cost (Dollars) 520,000 520,000 520,000 Variable Cost (Dollars) Profit (Dollars)

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Suppose that there is a market market for cashmere sweaters This market is a competitive market The ... View the full answer