Question #4: Economic Costs and Decision-Making of the Profit Maximizing Firm [24 Points] Mr. Woo owns a watch shop called Woo's Watches. Assume that the watch industry is perfectly competitive and that the industry price for a watch is P = $45. (@) Fill in the following table [10 Points] Quantity Total Total Total Marginal Average Average Average Total Marginal of Fixed Variable Costs Cost Fixed Variable Total Revenue Revenue Watches Costs Costs (TC) (MC) Costs Costs Costs (TR) (MR) Produced (TFC) (AFC) (AVO) (ATC) (Q) (TVC) 0 $00 N/A N/A N/A N/A N/A 330 2 345 3 375 420 480 (b) Based on the table in Part (a) what is the profit-maximizing quantity of watches that Woo's Watches will produce? Briefly explain how you arrived at your answer. [2 Points] (c) Calculate the level of short-run profits (or losses) at the profit-maximizing quantity of output. [2 Points] (d) Should Woo's Watches continue producing in the short-run or should Mr. Woo shut-down production immediately? Briefly explain how you arrived at your answer. [$ Points] (e) Briefly define increasing returns to scale (economies of scale). Does Woo's Watches display increasing returns to scale? Use the table from Part (a) to justify your answer. [5 Points]Question #5: Perfect Competition (14 Points] The graph below depicts the marginal revenue (MR), marginal cost (MC), average variable cost (AVC). and average total cost (ATC) curves for a firm in the perfectly competitive apple juice market. The quantity of output is measured in liters of apple juice, and the price is per liter of apple juice. $3.50 Price ATC MC $3.00 AVC $2.50 $2.00 MR $1.50 $1.00 $0.50 200 400 600 800 1,000 1,200 1,400 Quantity (Liters of Apple Juice) (a) Refer to the figure above. What is the price of a liter of apple juice? No explanation is required. [2 Points] (b) Refer to the figure above. If the perfectly competitive firm wishes to maximize their profits, how many liters of apple juice should they produce? Briefly explain how you were able to determine the quantity. [2 Points] Page 4 of 5 (c) Suppose the apple juice firm produces at the quantity you found in Part (b). What is the total revenue for the firm? [2 Points] (d) Suppose the apple juice firm produces at the quantity you found in Part (b). What is the average total cost (ATC) for the firm of producing a liter of apple juice? [2 Points] (c) Suppose the apple juice firm produces at the quantity you found in Part (b). What is the total cost (TC) for the firm of producing a liter of apple juice? [3 Points] (I Suppose the apple juice firm produces at the quantity you found in Part (b). What is the profit for the firm? [3 Points]