14. Profit maximization and shutting down in the short run The following graph plots daily cost curves for a firm operating in the competitive market for demin overalls. 50 45 35 30 ATC 25 PRICE (Dollars per overalls) 20 15 10 AVC MC 2 4 6 8 10 12 14 16 18 20 QUANTITY (Thousands of overallses)Using the following table, for each price level, calculate the optimal quantity of units for the firm to produce. Using the data from the graph to determine the firm's total variable cost, calculate the profit or loss associated with producing that quantity. Assume that if the firm is indifferent between producing and shutting down, it will choose to produce. (Hint: Select purple points [diamond symbols] on the graph to receive exact average variable cost information.) Price Quantity Total Revenue Fixed Cost Variable Cost Profit ( Dollars per overalls) (Overallses) (Dollars) (Dollars) (Dollars) (Dollars) 12.50 135,000 27.50 135,000 45.00 135,000If the firm shuts down, it must incur its fixed costs (FC) in the short run. In this case, the firrn's fixed cost is $135,000 per day. In other words, if it shuts down, the firm would suffer losses of $135,000 per clay until its fixed costs end (such as the expiration of a building lease). This firrn's shutdown pricethat is, the price below which it is optimal for the firm to shut downis 7 per overalls. Scooter's Scooters is a large American manufacturer of electric scooters operating out of Grand Rapids. Currently, the company produces all of its scooters using a single manufacturing facility, its factory in town. Recently, management has been considering expanding operations to one or two additional factories. The following table presents the manufacturer's monthly short-run average total cost (SRATC) for various levels of production if it operates out of one, two, or three factories. (Note: Q equals the total quantity of scooters produced by all factories.) Average Total Cost (Dollars per scooter) Number of Factories Q = 75 Q = 150 Q = 225 Q = 300 Q = 375 Q = 450 1 110 80 60 80 120 180 2 145 100 60 60 100 145 3 180 120 80 6O 80 110 Suppose Scooter's Scooters is currently producing 375 scooters per month in its only factory. Its short-run average total cost is per scooter. Suppose Scooter's Scooters is expecting to produce 375 scooters per month for several years. In this case, in the long ruhI it would choose to produce scooters using 7 . On the following graph, plot the three SRATC curves for Scooter's Scooters from the previous table. Specically, use the green points ( triangle symbol) to plot its SRATC curve if it operates one Factory (SRATUI); use the purple points (diamond symbol) to plot its SRATC curve if it operates two Factories (SR/1mg); and use the orange points (square symbol) to plot its SRATC curve if it operates three factories (SRATCg). Finally, plot the long-run average total cost {LRATC) curve For Scooter's Scooters using the blue points (circle symbol). Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically. 200 180 SRATC 160 140 120 SRATC, 100 AVERAGE TOTAL COST (Dollars per scooter) 80 SRATC, 60 O 40 LRATC 20 75 150 225 300 375 450 525 0 QUANTITY (Scooters)In the following table, indicate whether the tong-run average cost curve exhibits economies of scare, constant returns to scale, or diseconomies of scale for each range of scooter production. Range Economies of Scale Constant Returns to Scale Diseconomies of Scale More than 300 scooters per month 0 O O Between 225 and 30C) scooters per month 0 O 0 Fewer than 225 scooters per month 0 O O