Question

Consider the competitive market for dress shirts. The following graph shows the marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves for a typical firm in the industry.

100 T 10 10 20 30 40 50 60 70 80 90 100 QUANTITY Thousands of shirts) For each price in the following table, use the graph to detemine the number of shirts this fim would produce in order to maximize its profit. Assume that when the price is exactly equal to the average variable cost, the fim is indifferent between producing zero shirts and the profit-maximizing quantity. Also, indicate whether the fim will produce, shut down, or be indifferent between the two in the short run. Lastly, detemine whether it will make a profit, suffer a loss, or break even at each price. Price Quantity (shirts) (Dollars per shirt) Produce or Shut Down? Profit or Loss? 15 20 25 55 70

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: You are given more points to plot than you need.)

At the current short-run market price, firms will(produce/shut down) in the short run. In the long run, (firms will neither enter nor exit/some firms will enter/some firms will exit)

Answer 1

Set P=MC

The firm will not produce when P

P	Q	P/S	P/L
15	0	S	L
20	0	S	L
25	Either 0 or 45000	Either S or P	L
55	60000	P	Breakeven
70	65000	P	P
85	70000	P	P

100 T 90 80 70 Firm's Short-Run Supply MI 50 u 40 a 30 20 10 0 10 20 30 40 50 60 70 80 0 100 QUANTITY (Thousands of shirts)

When there are 8 firms,they will supply

P Q

25 360000

55 480000

70 520000

85 560000

110 Industry's Short-Run Suppy 70 MD Equilibrium ш40 30 0 80 180 240 320 400 480 580 840 720 800

At the current short-run market price, firms will(produce) in the short run. In the long run, (firms will neither enter nor exit)