professor donald liu
dept. applied
q3: (24 pts) minimizing your
loss via producing at p =
mc: consider a perfectly
competitive firm facing an
output price of $90 per
unit. the firm’s cost
structure is depicted by its
mc, atc, avc curves in the
diagram here.
(1a) (2 pts) at q = 6, what is
the firm’s total fixed costs?
answer: $90
(1b) (2 pts) at q = 12, what
is the firm’s total fixed
costs?
answer: $90
(2) (2 pts) produce or shutdown? is the price high enough to cover the
avc of production for at least some output levels? (yes or no?)
answer:
(3) (2 pts) shutdown: what would have been the firm’s total profit
if the firm had chosen to shut down instead?
answer: $
(4) (2 pts) produce: what is the profit - maximizing output quantity
if the firm is to follow the p = mc rule? (denote that quantity by ω.)
answer: ω = units
(5) (2 pts) at q = ω, what is the firm’s avc?
answer: $
(6) (2 pts) at q = ω, what is the firm’s average revenue?
answer: $
(7) (2 pts) given (5) and (6), what is the firm’s leftover per unit of
output after accounting for its variable cost of production?
answer: $
(8) (2 pts) at q = ω, what is the firm’s atc?
answer: $
(9) (2 pts) given (6) and (8), what is the firm’s profit per unit of output
at q = ω? (include a minus sign as needed.)
answer: $
(10) (2 pts) given (9), what is the firm’s total profit?
answer: $
(11) (2 pts) comparing (3) and (10), should the firm produce or shut down?
answer:
the diagram has mc, atc, avc curves, with price p = $90, and output quantity on the x - axis, price on the y - axis, with some marked points like at q = 6, 12, 18 with corresponding price values like $105, $95, $90 etc.

Question

professor donald liu
dept. applied
q3: (24 pts) minimizing your
loss via producing at p =
mc: consider a perfectly
competitive firm facing an
output price of $90 per
unit. the firm’s cost
structure is depicted by its
mc, atc, avc curves in the
diagram here.
(1a) (2 pts) at q = 6, what is
the firm’s total fixed costs?
answer: $90
(1b) (2 pts) at q = 12, what
is the firm’s total fixed
costs?
answer: $90
(2) (2 pts) produce or shutdown? is the price high enough to cover the
avc of production for at least some output levels? (yes or no?)
answer:
(3) (2 pts) shutdown: what would have been the firm’s total profit
if the firm had chosen to shut down instead?
answer: $
(4) (2 pts) produce: what is the profit - maximizing output quantity
if the firm is to follow the p = mc rule? (denote that quantity by ω.)
answer: ω =  units
(5) (2 pts) at q = ω, what is the firm’s avc?
answer: $
(6) (2 pts) at q = ω, what is the firm’s average revenue?
answer: $
(7) (2 pts) given (5) and (6), what is the firm’s leftover per unit of
output after accounting for its variable cost of production?
answer: $
(8) (2 pts) at q = ω, what is the firm’s atc?
answer: $
(9) (2 pts) given (6) and (8), what is the firm’s profit per unit of output
at q = ω? (include a minus sign as needed.)
answer: $
(10) (2 pts) given (9), what is the firm’s total profit?
answer: $
(11) (2 pts) comparing (3) and (10), should the firm produce or shut down?
answer:
the diagram has mc, atc, avc curves, with price p = $90, and output quantity on the x - axis, price on the y - axis, with some marked points like at q = 6, 12, 18 with corresponding price values like $105, $95, $90 etc.

Accepted Answer

### (3) Shutdown: What would have been the firm’s total profit if the firm had chosen to shut down instead?
# Explanation:
## Step1: Recall shutdown profit
When a firm shuts down, it produces $ Q = 0 $. Total revenue ($ TR $) is $ P \times Q = 90 \times 0 = 0 $. Total fixed cost ($ TFC $) is still incurred, and total variable cost ($ TVC $) is $ 0 $ (since no production). From part (1a), $ TFC = 90 $. So total cost ($ TC $) = $ TFC + TVC = 90 + 0 = 90 $. Profit is $ TR - TC = 0 - 90 = -90 $.
# Answer: $-90$

### (4) Produce: What is the profit - maximizing output quantity if the firm is to follow the $ P = MC $ rule?
# Explanation:
## Step1: Find $ P = MC $ quantity
In perfect competition, profit - maximization occurs where $ P = MC $. The price $ P=\$90 $. Looking at the graph, we find the quantity where $ MC = 90 $. From the diagram, when $ P = 90 $, the quantity $ \Omega $ (where $ P = MC $) is 12 units (by looking at the intersection of $ P = 90 $ and $ MC $ curve and the corresponding quantity on the x - axis).
# Answer: $12$

### (5) At $ Q=\Omega $, what is the firm’s AVC?
# Explanation:
## Step1: Read AVC at $ Q = 12 $
From the graph, at $ Q = 12 $, the AVC (Average Variable Cost) is given as $ \$87.5 $ (by looking at the AVC curve at $ Q = 12 $).
# Answer: $87.5$

### (6) At $ Q=\Omega $, what is the firm’s average revenue?
# Explanation:
## Step1: Recall average revenue in perfect competition
In perfect competition, average revenue ($ AR $) is equal to the price ($ P $) because $ AR=\frac{TR}{Q}=\frac{P\times Q}{Q}=P $. Since $ P = 90 $, $ AR = 90 $.
# Answer: $90$

### (7) Given (5) and (6), what is the firm’s leftover per unit of output after accounting for its variable cost of production?
# Explanation:
## Step1: Calculate leftover per unit
The leftover per unit after variable cost is $ AR - AVC $. We know $ AR = 90 $ and $ AVC = 87.5 $. So $ 90 - 87.5=2.5 $.
# Answer: $2.5$

### (8) At $ Q=\Omega $, what is the firm’s ATC?
# Explanation:
## Step1: Read ATC at $ Q = 12 $
From the graph, at $ Q = 12 $, the ATC (Average Total Cost) is $ \$95 $ (by looking at the ATC curve at $ Q = 12 $).
# Answer: $95$

### (9) Given (6) and (8), what is the firm’s profit per unit of output at $ Q=\Omega $?
# Explanation:
## Step1: Calculate profit per unit
Profit per unit is $ AR - ATC $. We know $ AR = 90 $ and $ ATC = 95 $. So profit per unit $=90 - 95=-5$.
# Answer: $-5$

### (10) Given (9), what is the firm’s total profit?
# Explanation:
## Step1: Calculate total profit
Total profit ($ \pi $) is profit per unit times quantity. Profit per unit is $-5$ and quantity $ Q = 12 $. So $ \pi=-5\times12=-60 $.
# Answer: $-60$

### (11) Comparing (3) and (10), should the firm produce or shut down?
# Explanation:
## Step1: Compare shutdown profit and production profit
From part (3), shutdown profit is $-90$ (loss of $ \$90 $). From part (10), production profit is $-60$ (loss of $ \$60 $). Since the loss is smaller when producing ($-60>-90$), the firm should produce.
# Answer: Produce

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QUESTION IMAGE

Question

Explanation:

(3) Shutdown: What would have been the firm’s total profit if the firm had chosen to shut down instead?

Step1: Recall shutdown profit

Step1: Find \( P = MC \) quantity

Step1: Read AVC at \( Q = 12 \)

Answer:

(4) Produce: What is the profit - maximizing output quantity if the firm is to follow the \( P = MC \) rule?