Question

For the pizza seller whose marginal, average variable, and average total cost curves are shown below, what is the profit maximizing level of output and profit of this firm if the price of pizza is $3.50? Below what price will this firm shut-down in the short-run?

Answer 1

The graph Below shows the marginal average variable d average total cost curves for a competitive firm refer to the graph ee profit maximizing level of output When the price piza is 3.50$.

In the short run, though, the decision varies depending on the level of losses and whether the firm can cover its average costs. the pizza does not have any revenues, so prize of pizza would increase variable costs and losses, so it should shut down and only incur its fixed costs. In the pizza losses are greater because it does not make enough revenue to cover its variable costs, so it should shut down immediately and only incur its fixed costs. If price is below the minimum average variable cost, the firm would lose less money by shuting down. In contrast, in pizza and only incur its fixed costs. If price is below the minimum average variable cost, the firm would lose less money by shuting down. In contrast, in prize of pizza the revenue that the center can earn is high enough that the losses diminish when it remains open, so the center should remain open in the short run.

26 Price Profit Dol Petit Mare Price =$6 10 (6,10) 2 Mc = Ave de MR 6 748 16