Suppose that the market for microwave ovens is a competitive market. The following graph shows the daily cost curves of a firm operating in this market. Ĉ 100 90 80 70 ATC ?
Suppose that the market for microwave ovens is a competitive market. The following graph shows the daily cost curves of a firm operating in this market. Ĉ 100 90 80 70 ATC ?
Chapter22: Supply: The Costs Of Doing Business
Section: Chapter Questions
Problem 17E
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Transcribed Image Text:Suppose that the market for microwave ovens is a competitive market. The following graph shows the daily cost curves of a firm operating in this
market.
PRICE (Dollars per oven)
100
90
80
70
40
30
20
10
0
0
5
0
MC
ATC
AVC
10 15 20 25 30 35
QUANTITY (Thousands of ovens)
40
45
50
(?)
![0
0
5 10 15 20 25 30 35 40
QUANTITY (Thousands of ovens)
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 produces at that
quantity, using the data from the graph to identify its total variable cost. Assume that if the firm is indifferent between producing and shutting down,
it will produce. (Hint: You can select the purple points [diamond symbols] on the graph to see precise information on average variable cost.)
Price
(Dollars per oven)
25.00
70.00
100.00
45 50
Quantity
(Ovens)
Total Revenue Fixed Cost
(Dollars)
(Dollars)
1,600,000
1,600,000
1,600,000
Variable Cost
(Dollars)
Profit
(Dollars)
If the firm shuts down, it must incur its fixed costs (FC) in the short run. In this case, the firm's fixed cost is $1,600,000 per day. In other words, if it
shuts down, the firm would suffer losses of $1,600,000 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 oven.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc751d6fd-d17c-47be-b3d8-6ae0f9d95edf%2Fc6515cda-d6cf-4c85-b777-fcf681ca52f9%2Fqe4ld9w_processed.png&w=3840&q=75)
Transcribed Image Text:0
0
5 10 15 20 25 30 35 40
QUANTITY (Thousands of ovens)
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 produces at that
quantity, using the data from the graph to identify its total variable cost. Assume that if the firm is indifferent between producing and shutting down,
it will produce. (Hint: You can select the purple points [diamond symbols] on the graph to see precise information on average variable cost.)
Price
(Dollars per oven)
25.00
70.00
100.00
45 50
Quantity
(Ovens)
Total Revenue Fixed Cost
(Dollars)
(Dollars)
1,600,000
1,600,000
1,600,000
Variable Cost
(Dollars)
Profit
(Dollars)
If the firm shuts down, it must incur its fixed costs (FC) in the short run. In this case, the firm's fixed cost is $1,600,000 per day. In other words, if it
shuts down, the firm would suffer losses of $1,600,000 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 oven.
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