Deriving the short-run supply curve

4. 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 rm in the industry. (2) 80 72 64 56 48 40 32 24 PRICE AND COST PER UNIT (Dollars) 16 QUANTITY OF OUTPUT (Thousands of shirts) For each price in the following table, use the graph to determine the number of shirts this firm 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 prot-maximizing quantity. Also, indicate whether the rm will produce, shut down, or be indifferent between the two in the short run. Lastly, determine whether it will make a prot, suffer a loss, or break even at each price. Price Quantity (Dollars per shirt) (Shirts) Produce or Shut Down? Profit or Loss? 4 v v v 8 v v v 12 v v v 35 v v v 48 v v v 50 v v v For each price in the following table, use the graph to determine the number of shirts this firm would produce in order to maximize its prot. Assume that when the price is exactly equal to the average variable cost, the rm is indifferent between producing zero shirts and the prot-maximizing quantity. Also, indicate whether the rm will produce, shut down, or be indifferent between the two in the short run. Lastly, determine whether it will make a prot, suffer a loss, or break even at each price. Price Quantity (Dollars per shirt) (Shirts) Produce or Shut Down? Profit or Loss? 4 v v v 8 v v v 12 v v v 36 V V v 43 v v v 60 V V v On the following graph, use the orange points (square symbol) to plot points along the portion of the rm '5 short-run supply curve that corresponds to prices where there is positive output. (Note: You are given more points to plot than you need.) (23 -I- 72 64 Firm's Short-Run Supply 56 4B 4o - 32 PRICE (Dollars per shirt) 24 18 -- 0 l l | l | l | l l | 0 8 16 24 32 40 48 56 64 72 80 QUANTITY OF OUTPUT (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 paint (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. 80 Demand -I- 72 64 Industry's Short-Run Supply 7 56 '1' LE 3 4B Equilibrium 3 g 40 E 9. Lu 32 9 I D. 24 16 8 0 I I I I I I I I I I a an 180 240 320 400 430 580 640 720 800 QUANTITY OF OUTPUT (Thousands of shirts) At the current short-run market price, firms will V in the short run. In the long run, V