3 . Deriving the short-run supply curve Consider the perfectly 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 90 80 70 30 ATC 50 COSTS (Dollars) 40 20 AVC 10 MCO 5 10 15 20 25 30 35 40 45 50 QUANTITY (Thousands of shirts)For each price in the following table, use the graph to determine the number of shirts this rm would produce in order to maximize its prot. Assume that when the price is exactly equal to the average variable cost, the firm is indifFerent between producing zero shirts and the profit-maximizing quantity. Also, indicate whether the firm will produce, shut clown, or he indifferent between the two in the short run. Lastly, determine whether it will make a profit, suffer a loss, or break even at each price. Price Quantity (Dollars per shirt} (Shirts) Produce or Shut Down? Profit or Less? 10 V V V 20 V V V 32 V V V 40 V V V 50 V V V 50 V V V 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.) 100 08 Firm's Short-Run Supply 80 70 80 50 PRICE (Dollars per shirt) 40 30 20 10 5 10 15 20 25 30 35 40 45 50 QUANTITY (Thousands of shirts)Suppose there are 10 firms in this industry, each of which has the cost curves previously shown. On the following graph, use the orange points (square symbol) to plot points along the portion of the industry'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.) Then, place the black point (plus symbol) on the graph to indicate the short-run equilibrium price and quantity in this market. Note: Dashed drop lines will automatically extend to both axes. 100 -0 Industry's Short-Run Supply 80 Demand 70 Equilibrium 80 50 PRICE (Dollars per shirt) 40 30 20 10 50 100 150 200 250 300 350 400 450 500 QUANTITY (Thousands of shirts) At the current short-run market price, firms will in the short run. In the long run,Suppose there are 10 firms in this industry, each of which has the cost curves previously shown. On the following graph, use the orange points (square symbol) to plot points along the portion of the industry'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.) Then, place the black point (plus symbol) on the graph to indicate the short-run equilibrium price and quantity in this market. Note: Dashed drop lines will automatically extend to both axes. 100 -O 80 Industry's Short-Run Supply Demand 70 80 Equilibrium 50 PRICE (Dollars per shirt) 40 30 20 10 50 100 150 200 250 300 350 400 450 500 QUANTITY (Thousands of shi produce shut down At the current short-run market price, firms will in the short run. In the long run,Suppose there are 10 firms in this industry, each of which has the cost curves previously shown. On the following graph, use the orange points (square symbol) to plot points along the portion of the industry'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.) Then, place the black point (plus symbol) on the graph to indicate the short-run equilibrium price and quantity in this market. Note: Dashed drop lines will automatically extend to both axes. (? 100 90 80 Demand Industry's Short-Run Supply 70 .+ 80 Equilibrium 50 PRICE (Dollars per shirt) 40 30 20 10 firms will neither enter nor exit 0 50 10 150 200 250 300 350 400 450 5 QUANTITY (Thousands of shirts) some firms will enter some firms will exit At the current short-run market price, firms will in the short run. In the long run