Top Posters
Since Sunday
12
s
6
j
5
5
s
5
m
5
b
4
p
4
m
4
M
4
i
4
P
4
Home Q & A Board Other Fields Homework Help Business Economics
New Topic  
phoebe.lou phoebe.lou
wrote...
Go to Answer
Posts: 37
Rep: 0 0
2 weeks ago
The Short Run Supply Curve and Shutting Down

The table shows the profit-maximizing quantity, variable costs, and fixed costs for two different firms.

​Firm 1Firm 2
Quantity1000500
Variable cost$4500​$7500​
Fixed cost$392​$94​
Assume that the market price is $9. In the short run:
Firm 1 will ________ (produce/shut down) with an economic ________ (profit/loss).
Firm 2 will ________ (produce/shut down) with an economic ________ (profit/loss).

▸ produce, loss, produce, loss

▸ produce, profit, shut down, loss

▸ shut down, loss, produce, profit

▸ shut down, loss, shut down, loss
Textbook 
Macroeconomics

Macroeconomics


Edition: 3rd
Authors:
Read 2 times
1 Reply
Replies
Answer verified by a subject expert
wukong81wukong81
wrote...
#1
Posts: 44
Rep: 0 0
2 weeks ago
Sign in or Sign up in seconds to unlock everything for free
More solutions for this book are available here
produce, profit, shut down, loss

In the short run, a firm will continue to produce as long as the market price (P) is greater than or equal to the average variable costs (AVC).
AVC = Variable Cost/Quantity
For Firm 1, AVC = 4500/1000 = $4.50. Therefore, Firm 1 will produce.
For Firm 2, AVC = 7500/500 = $15.00. Therefore, Firm 2 will shut down.

If P > Average Total Cost (ATC), the firm will earn an economic profit.
If P = ATC, the firm will break even.
If P < ATC, the firm will experience an economic loss.
ATC = AVC + Average Fixed Cost (AFC).
AFC = Fixed Cost/Quantity
For Firm 1, AFC = 392/1000 = $0.39. Therefore, ATC = AVC + AFC = 4.50 + 0.39 = $4.89 and the firm earns an economic profit.
For Firm 2, AFC = 94/500 = $0.19. Therefore, ATC = AVC + AFC = 15.00 + 0.19 = $15.19 and the firm experiences an economic loss.
This verified answer contains over 130 words.
1

Related Topics

phoebe.lou Author
wrote...

2 weeks ago
this is exactly what I needed
klyn
wrote...

Yesterday
Thanks
vernonb
wrote...

2 hours ago
This calls for a celebration Person Raising Both Hands in Celebration
New Topic      
Quick Reply
Explore
Post your homework questions and get free online help from our incredible volunteers
  139 People Browsing
 465 Signed Up Today
Start New Topic Take the Tour Study Tips Study ToolsNew Topics Trending Browse by Textbook
Related Images
  
 859
  
 55
  
 37