A5

5. 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 motor scooters. no TO PRICE (Dolars per scooter) ATC MC AVC 10 20 50 40 50 60 90 100 QUANTITY (Thousands of scooters)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 scooter) (Scooters) (Dollars) ( Dollars) (Dollars) (Dollars) 25.00 520,000 40.00 520,000 65.00 520,000 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 $520,000 per day. In other words, if it shuts down, the firm would suffer losses of $520,000 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 scooter. Grade It Now Save & Continue Continue without saving