Consider the purely competitive market for ceiling halogen lamps. The following

Question

Consider the purely competitive market for ceiling halogen lamps. The following graph shows the marginal cost (MC), average total cost (ATC), ant) average variable cost (AVC) curves for a typical firm in the industry. For each price in the following table, use the graph to determine the number of lamps this firm would produce in order to maximize its economic profit. Assume that when the price is exactly equal to the average variable cost, the firm is indifferent between producing zero units and the profit-maximizing quantity. Also, indicate for each price whether the firm will produce, shut down, or be indifferent between the two in the short run, and whether it will make an economic profit, suffer a loss, or break even. For each price in the following table, use the graph to determine the number of lamps this firm would produce in order to maximize its economic profit. Assume that when the price is exactly equal to the average variable cost, the firm is indifferent between producing zero units and the profit-maximizing quantity. Also, indicate for each price whether the firm will produce, shut down, or be indifferent between the two in the short run, and whether it will make an economic profit, suffer a loss, or break even. On the following graph, use the orange points (square symbol) to plot the portion of the firm's short-run supply curve that corresponds to pries where there is positive output. Line segments will automatically connect the points. Remember to plot from left to right. (Note: you arc given more points to plot than you need!)

Explanation / Answer

And for positive output, connect the orange squares which are located at (3,25) and (7,90)

Price Total product Produce or shutdown Economic Profit or Loss 10 0 shutdown loss 15 2000 Indifferent between production and shutdown Loss 25 3000 Produce Breakeven 35 4000 Produce Profit 50 5000 Produce Profit 70 6000 Produce Profit 90 7000 Produce Profit

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