Consider a perfectly competitive market for shirts. The following graph shows the daily cost curves of a firm operating in this market. In the short run, at a market price of $18 per shirt, the firm will choose to produce _____ shirts per day. What is the firms economic profit or loss? Complete the following table.
|Price||Quantity||Total Revenue||Fixed Cost||Variable Cost||Profits|
If the firm shuts down, it must incur its fixed costs (FC) in the short run. In this case, the firms fixed cost is $108,000 per day. In other words, if it shuts down, the firm would suffer losses of $108,000 per day until its fixed costs end (such as the expiration of a building lease).
The firms shutdown price--that is, the price below which it is optimal for the firm to shut down--Is _____ per shirt?
Perfect competition is a market situation where the number of consumers and producers are numerous or well informed to the extent that there are no possibilities for a monopoly and the price of the good or service is beyond the control of the producers and consumers.
Answer and Explanation: 1
At a market price of $18 the firm will produce 36,000 shirts because this is where price equals marginal cost. At a price of $6 the quantity produced...
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fromChapter 3 / Lesson 62
Learn the definition, characteristics, and benefits of perfect competition. Review real-life examples of perfect competition between different companies.