Isabella grows pumpkins. Her average variable cost (AVC), average total cost (AT

Question

Isabella grows pumpkins. Her average variable cost (AVC), average total cost (ATC), and marginal cost (MC) of production are illustrated in the figure to the right 2.001 1.00 10.00 MC Assume the market for pumpkins is perfectly competitive and that the market price is $4.00 per box. 8 If Isabella produces the profit-maximizing quantity of pumpkins, what will be her profits? 7.00- Isabella will earn a profit of thousand response rounded to two decimal places.) (Enter your 5.00- 4.00 What will Isabella's profit be if she shuts down in the short run and produces nothing? Isabella's profit will be $ thousand. (Enter your response rounded to two decimal places.) Quantity (boxes in thousands)

Explanation / Answer

Answer

the firm produce at MC=P

it is at Q=1000

where

ATC=9.5

Profit=(P-ATC)*Q

=(4-9.5)*1000=5500

the firm make the loss of $5500.00

the loss at shutdown is the fixed cost

fixed cost=AFC*Q

AFC=ATC-AVC

ATC at Q=1000 is $9.5 and AVC=3.5

AFC=9.5-3.5=6

FC=6*1000=6000.00

the loss if the firm shut down is $6000.00

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