Question

Consider the perfectly competitive market for halogen ceiling lamps. 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. COSTS (Dollars per tamp) 100 MC 90 80 70 60 50 ATC AVC 40 30 20 10 0 5 10 15 20 25 30 35 40 45 50 QUANTITY OF OUTPUT (Thousands of lamps) For each price in the following table, use the graph to determine the number of lamps this firm would produce in order to maximize its economic profit. Assume that when the price is exactly equal to the average variable cost, the firm is indifferent between producing zero units and the profit-maximizing quantity. Also, indicate for each price whether the firm will produce, shut down, or be indifferent between the two in the short run and whether it will make a profit, suffer a loss, or break even.

Answer 1

Quantity O Price. 10 15 25 35 50 TO 90 10 15 20 Produce or Shutdown Profit or Loss? Shutdown Indifferent Produce Breakeven Produce Profit Produce Profit Produce Profit Produce Profit 25 30 35 Price Supply came 90 80 60 SO 407 35 20 a 20 15 0 5 10 15 20 25 30 35 40 45 50 Quantit dity