Suppose that the market for microwave ovens is a competitive market. The following graph shows the daily cost curves of a firm operating in thismarket.PRICE (Dollars per oven)1009080o7060504030201000 5ATCZAVC10MC15 20 25 30 35QUANTITY (Thousands of ovens)40 45 50? For each price in the following table, calculate the firm's optimal quantity of units to produce, and determine the profit or loss if it produces at thatquantity, using the data from the graph to identify its total variable cost. Assume that if the firm is indifferent between producing and shutting down, itwill produce. (Hint: You can select the purple points [diamond symbols] on the graph to see precise information on average variable cost.)Price(Dollars per oven)25.0070.00100.00Quantity(Ovens)Total Revenue(Dollars)Fixed Cost(Dollars)1,600,0001,600,0001,600,000Variable Cost(Dollars)Profit(Dollars)If the firm shuts down, it must incur its fixed costs (FC) in the short run. In this case, the firm's fixed cost is $1,600,000 per day. In other words, if itshuts down, the firm would suffer losses of $1,600,000 per day until its fixed costs end (such as the expiration of a building lease).This firm's shutdown price-that is, the price below which it is optimal for the firm to shut down-isper oven.

Industrial economics is the study and appraisal of business financial issues utilizing abstract…

Suppose that the market for microwave ovens is a competitive market. The following graph shows the daily cost curves of a firm operating in this market. PRICE (Dollars per oven) 100 90 80 70 60 50 40 30 20 10 0 ATC Z AVC 0 5 10 MC D 15 20 25 30 35 40 QUANTITY (Thousands of ovens) 45 50 ?

Suppose that the market for microwave ovens is a competitive market. The following graph shows the daily cost curves of a firm operating in this market. PRICE (Dollars per oven) 100 90 80 70 60 50 40 30 20 10 0 ATC Z AVC 0 5 10 MC D 15 20 25 30 35 40 QUANTITY (Thousands of ovens) 45 50 ?

Microeconomics: Principles & Policy

14th Edition

ISBN:9781337794992

Author:William J. Baumol, Alan S. Blinder, John L. Solow

Publisher:William J. Baumol, Alan S. Blinder, John L. Solow

Chapter7: Production, Inputs, And Cost: Building Blocks For Supply Analysis

Section: Chapter Questions

Problem 1DQ

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Question

Suppose that the market for microwave ovens is a competitive market. The following graph shows the daily cost curves of a firm operating in this
market.
PRICE (Dollars per oven)
100
90
80
o
70
60
50
40
30
20
10
0
0 5
ATC
Z
AVC
10
MC
15 20 25 30 35
QUANTITY (Thousands of ovens)
40 45 50
?

For each price in the following table, calculate the firm's optimal quantity of units to produce, and determine the profit or loss if it produces at that
quantity, using the data from the graph to identify its total variable cost. Assume that if the firm is indifferent between producing and shutting down, it
will produce. (Hint: You can select the purple points [diamond symbols] on the graph to see precise information on average variable cost.)
Price
(Dollars per oven)
25.00
70.00
100.00
Quantity
(Ovens)
Total Revenue
(Dollars)
Fixed Cost
(Dollars)
1,600,000
1,600,000
1,600,000
Variable Cost
(Dollars)
Profit
(Dollars)
If the firm shuts down, it must incur its fixed costs (FC) in the short run. In this case, the firm's fixed cost is $1,600,000 per day. In other words, if it
shuts down, the firm would suffer losses of $1,600,000 per day until its fixed costs end (such as the expiration of a building lease).
This firm's shutdown price-that is, the price below which it is optimal for the firm to shut down-is
per oven.

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