Consider Bob’s company described in Problem 3. Assume that flower pot production is a perfectly competitive industry. For each of the following questions, explain your answers.

a. What is Bob’s break-even price? What is his shut-down price?

b. Suppose the price of a flower pot is $2. What should Bob do in the short run?

c. Suppose the price of a flower pot is $7. What is the profit-maximizing quantity of flower pots that Bob should produce? What will his total profit be? Will he produce or shut down in the short run? Will he stay in the industry or exit in the long run?

d. Suppose instead that the price of a flower pot is $20.

Now what is the profit-maximizing quantity of flower pots that Bob should produce? What will his total profit be now? Will he produce or shut down in the short run?

Will he stay in the industry or exit in the long run?

Data From Problem 3:

Bob produces flower pots for sale, which he designs and manufactures using 3-D printing technology. Bob rents a building for $30,000 per month and rents machinery for

$20,000 a month. Those are his fixed costs. His variable cost per month is given in the accompanying table.

Transcribed Image Text:

Quantity of flower pots 0 1,000 == VC $0 5,000 2,000 8,000 3,000 9,000 4,000 14,000 5,000 20,000 6,000 33,000 7,000 49,000 8,000 72,000 9,000 99,000