CENGAGE MINDTAP Course
Homework (Ch 14)
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.)
Profit
Price
(Dollars per sweater)
Quantity
(Sweaters)
30,000
Total Revenue
(Dollars)
Variable Cost
(Dollars)
(Dollars)
25.00
Fixed Cost
(Dollars)
520,000
520,000
520,000
40.00
65.00
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 $520,000 per day. In other words, if it
shuts down, the firm would suffer losses of $520,000 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 $40.00 per sweater.