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PLEASE READ VERY CAREFULLY!! ANSWERS MUST BE CORRECT AND CLEAR TO READ. AND FOR THE GRAPH PLEASE LIST OUT ALL THE COORDINATE POINTS!! THANKS!

5. Deriving the short-run supply curve Consider the price-taker 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 firm in the market. 90 70 2 60 ︶50 O 40 30 AVC 20 เ0 20 30 40 50 60 70 80 90 100 QUANTITY (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 profit. Assume that when the price is exactly equal to the average variable cost, the firm is indifferent between producing zero shirts and the profit-maximizing quantity. Also, indicate whether the firm will produce, shut down, or be indifferent between the two in the short run. Lastly, determine whether it will make a profit, suffer a loss, or break even at each price Price (Dollars per shirt) 15 20 25 Quantity (Shirts) Produce or Shut Down? Profit or Loss? Shut down Shut down Produce Produce Produce Produce Loss Loss Loss Either 0 or 45,000 ▼ Break even ▼ 60,000 65,000 70,000 70 Profit 85 Profit

PRODUCE OR SHUTDOWN OPTIONS"

EITHER SHUT DOWN OR PRODUCE

PRODUCE

SHUTDOWN

Suppose there are 7 firms in this market, 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 market 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 point (plus symbol) on the graph to indicate the short-run equilibrium price and quantity in this market. 90 Demand Market Short-Run Supply 70 Equilibrium 60 40 30 20 0 70 40 210 280 350 420 490 50 630 700 QUANTITY (Thousands of shirts)

At the current short-run market price, firms will produce ▼ in the short run In the long run, firms will neither enter nor exit Grade It Now Save & Continue Continue without saving

IN THE LONG RUN: FIRMS WILL NEITHER ENTER NOR EXIT

SOME FIRMS WILL ENTER

SOME SOME FIRMS WILL EXIT

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