Question 14A

Suppose that the market for blenders is a competitive market. The following graph shows the daily cost curves of a rm operating in this market. @ 100 90 80 ATC 70 60 50 40 30 PRICE (Dollars per blender) 20 AVG 10 MC 0 5 10 15 20 25 30 35 40 45 50 QUANTITY (Thousands of blenders) For each price in the following table, calculate the rm 's optimal quantity of units to produce, and determine the prot or loss if it produces at that quantity, using the data from the graph to identify its total variable cost. Assume that if the firm is indifferent between producing and shutting down, it will produce. (Hint: You can select the purple points [diamond symbols] on the graph to see precise information on average variable cost.) Price Quantity Total Revenue Fixed Cost Variable Cost Profit (Dollars per blender) (Blenders) (Dollars) (Dollars) (Dollars) (Dollars) 25.00 V 1,600,000 70.00 V 1,600,000 100.00 Y 1,600,000 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 $1,600,000 per day. In other words, if it shuts down, the firm would suffer losses of $1,600,000 per day until its fixed costs end (such as the expiration of a building lease). This rm's shutdown pricethat is, the price below which it is optimal for the firm to shut downis V per blender