Question

COSTS (Dollars) 8 a88 + EmoK(LH14 6. Deriving the short-run supply curve Consider the competitive market for sports jackets. The following graph shows the marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves for a typical firm in the industry 100 90 70 60 ATC 50 40 30 20 AVC For each price in the following table, use the graph to determine the number of jackets 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 jackets 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 Quantity (Dollars per jacket) (Jackets) Produce or Shut Down? Profit or Loss? 10 Shut down Loss 20 Either 0 or 30,000 Either shut down or produce Loss 32 35,000 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: You are given more points to plot than you need.) PRICE (Dollars per jacket) 88 UUN apH, 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: You are given more points to plot than you need.) 100 Fim's Short-Run Supply 70 60 50 30 20 10 10 15 20 25 30 35 40 45 50 QUANTITY (Thousands of CE (Dollars per jacket) 88 Suppose there are 5 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 point (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. 100 Industry's Short-Run Supply Demand Equibrium 60 50 40 PRICE (Dollars per jacket) 88 100 Demand Industry's Short-Run Supply 70 60 Equilibrium 50 30 20 10 25 50 75 100 125 150 175 200 225 250 QUANTITY (Thousands of jackets) PRICE (Dollars per jacket) Industry's Short-Run Supply 80 Demand 70 60 Equilibrium 50 40 30 20 10 0 C 25 50 75 100 125 150 175 200 225 2500 QUANTITY (Thousands of jackets) At the current short-run market price, firms will produce in the short run. In the long run, some firms will exit

Answer 1

The firm will produce at all the points that lie above the minimum point of average variable cost curve of the firm.At the point where price is equal to minimum of AVC or $20 in this case, the firm is indifferent between producing or shut down. Thus, the values filled in the table below are absolutely correct.

For each price in the following table, use the graph to determine the number of jackets 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 jackets 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 Quantity (Jackets) (Dollars per jacket) Produce or Shut Down? Profit or Loss? 10 Shut down Loss 20 Either 0 or 30,000 Either shut down or produce Loss 35,000 32 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: You are given more points to plot than you need.)

The firm's short run supply curve is the portion of the marginal cost curve that lies above the minimum point of the average variable cost curve.

grapn, 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: You are given more points to plot than you need.) 100 -0- Fim's Short-Run Supply 70 60 40 20 10 15 20 30 25 95 40 45 QUANTITY (Thousands of jackets) 8 8 haxo sad sueoak

90 Industry's Short-Run Supply Demand 70 Equilibrium 50 40 30 20 10 0 25 50 75 100 125 150 175 200 225 250 QUANTITY (Thousands of jackets) At the current short-run market price, firms will produce in the short run. In the long run, some firms will exit 2 8 (apef Jad sueyoa

The industry supply curve is the horizontal summation of the individual supply curve of firms.

Since the current market price of $40 is more than the $20 which is minimum of AVC, thus firm will produce in the short run. In the long run , since the price is below the average total cost of $50, some firms will be incurring losses and thus some firms will exit the industry.