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$6.$ 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 snapback hats.

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COSTS $($Dollars$)$

QUANTITY $($Thousands of snapbacks$)$

MC

ATC

AVC

For every price level given in the following table, use the graph to determine the profit$-$maximizing quantity of snapbacks 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 snapbacks and the profit$-$maximizing quantity of snapbacks.$)$ Lastly, determine whether the firm will earn a profit, incur a loss, or break even at each price.

Price

Quantity

Produce or Shut Down?

Profit or Loss?

$($Dollars per snapback$)$

$($Snapbacks$)$

$10$

$20$

$32$

$40$

$50$

$60$

On the following graph, use the orange points $($square symbol$)$ to plot points along the portion of the firm's short$-$run supply curve that corresponds to prices where there is positive output. $($Note: For the graphing tool to grade correctly, you must plot the points in order from left to right, starting with the point closest to the origin. You are given more points to plot than you need.$)$

Firm's Short$-$Run Supply

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PRICE $($Dollars per snapback$)$

QUANTITY $($Thousands of snapbacks$)$

Suppose there are $8$ firms in this industry, each of which has the cost curves previously shown.

On the following graph, use the orange points $($square symbol$)$ to plot points along the portion of the industry$$s short$-$run supply curve that corresponds to prices where there is positive output. $($Note: For the graphing tool to grade correctly, you must plot these points in order from left to right, starting with the point closest to the origin. You are given more points to plot than you need.$)$ Next, place the black point $($plus symbol$)$ on the graph to indicate the short$-$run equilibrium price and quantity in this market.

Note: Dashed drop lines will automatically extend to both axes.

Industry's Short$-$Run Supply

Equilibrium

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PRICE $($Dollars per snapback$)$

QUANTITY $($Thousands of snapbacks$)$

Demand

At the current short$-$run market price, firms will in the short run. In the long run, $.$

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