Congider the perfecty compesitive market for halogen ceiling lamps. The followin

Question

Congider the perfecty compesitive market for halogen ceiling lamps. The following graph shows the marginal cost (MC), average total cost (ATC), and average variable cast (AVC) curves for a typical firm in the industry PRICE IDallars per lamp 80 70 10 0 2 4B t0 12 14 16 18 20 OUTPUT [Thausands of lampes per man For each price in the following table, use the graph to determine the num maximize its profit. Assume that when the price is exactly equal to the average variable cost, the fim is indifferent between ber of lamps this firm would produce in order to zera units and the profit-maximizing quantity. Also, indicate for eech price whether the firm will produce, shut down, or be indifferent between the two in the short run and whether it will make a profit, suffer a loss, or break even. Price (Dollars per lamp) Quantity (Lamps per month) Produce or Shut Down? Profit or Loss? 15 25 35 50 90

Explanation / Answer

Firm will shut down its production when firm is not able to cover all its variable costs. When firm is able to cover all its variable cost or some of its fixed cost then firm will definitely produce.

Firm suffers losses when firms's price is lower than ATC. When price exceeds ATC then firm earns profit.

Price Quantity Produce or shut down? Profit or loss? 10 2000 Shut down Loss 15 4000 Produce Loss 25 6000 Produce Break even 35 8000 Produce Profit 50 10000 Produce Profit 70 12000 Produce Profit 90 14000 Produce Profit

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