Deriving the short run supply curve

6. Deriving the short-run supply curve The following graph plots the marginal cost (MC) curve, average total cost (ATC) curve, and average variable cost (AVC) curve for a firm operating in the competitive market for snapback hats. 8 6 8 8 8 8 8 ATC COSTS (Dollars) 8 AVC 8 8 10 15 20 25 30 35 QUANTITY (Thousands of snapbacks) For every price level given in the following table, use the graph to determine the profit-maximizing quantity of snapbacks for the firm. Further, select whether the firm will choose to produce, shut down, or be indifferent between the two in the short run. (Assume that when price exactly equals average variable cost, the firm is indifferent between producing zero snapbacks and the profit-maximizing quantity of snapbacks.) Lastly, determine whether the firm will earn a profit, incur a loss, or break even at each price. Price Quantity (Dollars per snapback) (Snapbacks) Produce or Shut Down? Profit or Loss? 10 Either shut down or produce Loss 20 Either 0 or 30,000 Shut down Loss 32 35,000 Either shut down or produce Loss 40 37,500 Produce Loss 50 40,000 Produce Break even 60 42,500 Produce Profit 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: For the graphing tool to grade correctly, you must plot the points in order from left to right, starting with the point closest to the origin. You are given more points to plot than you need.)100 90 80 Firm's Short-Run Supply 70 60 PRICE (Dollars per snapback) 50 40 30 20 10 0 5 10 15 20 25 30 35 40 45 50