Question

Consider the competitive 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 industry. 100 T 90 80 70 60 e 50 8 40 30 20 10 ATC AVC 0 5 10 15 20 25 30 35 40 45 50 QUANTITY (Thousands of shirts)

Answer 1

Below graph show the competitive market for dress shirts 100 T 90 80 70 60 50 TC 0 40 30 20 10 0 5 10 15 20 25 30 35 40 45 50 QUANTITY (Thousands of shirts) The firm produces Oquantity when the price is less than the average variable cost and the firm will shut down incurring losses. Till the price is equal to AVC the firm will either shutdown or be indifferent. The firm will produce when the price is above AVC and less than ATC and the firm will incur loss. The firm earns profit when price is more than ATC

Below table explains it clearly: Price (dollars Quantity per jacket) (Shirts) ProduceProfit or /Shut Down Loss Loss 200 or 30,000 Indifferent Loss Loss Loss 이Shut Down 32 35,000 Produce 37.500 Produce 5040,000 Produce 60 42,500 Produc 40 Break-even e Profit Below graph shows the firms short run supply curve 100 90 80 70 60 50 40 30 Firm's Short run supply curve 20 10 0 5 10 15 20 25 30 35 40 45 50 QUANTITY (Thousands of shirts)

There are five firms. This means that the industry's supply curve will be horizontally summation of five individual supply curves. At the price level of $40, the quantity supplied is 37,500units; this means that the industry's supply curve is 187,500 units (37,500x5) Below graph shows the industry's short run supply curve:

100 T 90 80 Demand 70 60 50 40- a 30 20 10 0 25 50 75 100 125 150 175 200 225 250 QUANTITY (Thousands of shirts) Therefore, the equilibrium is attained at price S40 where the quantity is 187,500 thousand of shirts. At the current short-run market price, firms will produce in the short run. In the long run, as the firms suffering losses they exit the industry