Consider a perfectly competitive market for shirts. The following graph shows the daily cost...
Question:
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 |
|---|---|---|---|---|---|
| 6.00 | 108,000 | ||||
| 12.00 | 108,000 | ||||
| 18.00 | 108,000 |
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:
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
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View this answerAt 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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