QUESTION 10 The Great Wall of China attracts millions of tourists every year, wi

Question

QUESTION 10 The Great Wall of China attracts millions of tourists every year, with many vendors selling goods at key tourist destination points. During summer, the vendors all sell icy cold bottled water. Assume the market for bottled water is perfectly competitive. Ji is a vendor in this market who sells 77 bottles (her profit-maximising quantity) at the market price of $2, with the average total cost being $2.10 per bottle. The minimum average variable cost is $1.70 per bottle Answer the following questions economic profit or loss is (use a negative value if a loss). Answer in dollars, rounded to two decimal places (ie: to the nearest cent) a. Ji's economic profit or loss is b. Should Ji shut down? Type Y for Yes, or N for No c. State whether the following statement is true or false: "Ji needs to minimise her loss of $0.10 per bottle by producing the quantity where price equals her marginal cost." Type T for true, or F for false

Explanation / Answer

Economic profit = Q x (P - ATC) = 77 x (2 - 2.1) = - $ 7.7

Ji should not shut down because P > AVC (min) / shutdown price (Ji is able to cover some part of fixed costs as P > AVC)

Profit would be maximized/ loss minimized when P = MC (statement is true)

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