Consider the competitive market for sports jackets. The following graph shows the marginal cost (MC), average total cost (ATC, and average variable cost (AVC) curves for a typical firm in the industry. 72 ATC AVC 24 40 72 QUANTITY (Thousarda of jacuta For each price in the following tabie, use the graph to determine the number of jackets this firm would produce in arder to maximize its profit. Assume that when the price is exactly equal to the average variabie cost, the firm is indiferent between praducing zero jackets and the profit-maximizing quantity. Also, indicate whether the fiem wil produce, shut down, ar be indiferent between the two in the short run. Lastiy, determine whether ie will make a prafie, suffera loss, ar break even at each price. Price Quantity (Dolars per jacket) (Jackets) Produce or Shut Down? Profit or Loss? 12 36 48 60 (nal susoo

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Consider the competitive market for sports jackets. The following graph shows the marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves for a typical firm in the industry.

### Graph Explanation
- **X-Axis:** Quantity (Thousands of jackets)
- **Y-Axis:** Cost (Dollars per jacket)

#### Curves:
- **MC (Marginal Cost):** U-shaped, initially decreases, then increases steeply as quantity increases.
- **AVC (Average Variable Cost):** U-shaped, lying below the ATC curve, showing the variable costs per unit.
- **ATC (Average Total Cost):** U-shaped, shows average total costs per unit and lies above the AVC curve.

The intersection of the MC curve with the ATC and AVC curves is crucial for determining production decisions and profitability.

### Table Instructions
For each price in the following table, use the graph to determine the number of jackets this firm would produce in order to maximize its profit. Assume that when the price is exactly equal to the average variable cost, the firm is indifferent between producing zero jackets and the profit-maximizing quantity. Also, indicate whether the firm will produce, shut down, or be indifferent between the two in the short run. Lastly, determine whether it will make a profit, suffer a loss, or break even at each price.

| Price (Dollars per Jacket) | Quantity (Jackets) | Produce or Shut Down? | Profit or Loss? |
|----------------------------|--------------------|-----------------------|-----------------|
| 4                          |                    |                       |                 |
| 8                          |                    |                       |                 |
| 12                         |                    |                       |                 |
| 36                         |                    |                       |                 |
| 60                         |                    |                       |                 |
Transcribed Image Text:Consider the competitive market for sports jackets. The following graph shows the marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves for a typical firm in the industry. ### Graph Explanation - **X-Axis:** Quantity (Thousands of jackets) - **Y-Axis:** Cost (Dollars per jacket) #### Curves: - **MC (Marginal Cost):** U-shaped, initially decreases, then increases steeply as quantity increases. - **AVC (Average Variable Cost):** U-shaped, lying below the ATC curve, showing the variable costs per unit. - **ATC (Average Total Cost):** U-shaped, shows average total costs per unit and lies above the AVC curve. The intersection of the MC curve with the ATC and AVC curves is crucial for determining production decisions and profitability. ### Table Instructions For each price in the following table, use the graph to determine the number of jackets this firm would produce in order to maximize its profit. Assume that when the price is exactly equal to the average variable cost, the firm is indifferent between producing zero jackets and the profit-maximizing quantity. Also, indicate whether the firm will produce, shut down, or be indifferent between the two in the short run. Lastly, determine whether it will make a profit, suffer a loss, or break even at each price. | Price (Dollars per Jacket) | Quantity (Jackets) | Produce or Shut Down? | Profit or Loss? | |----------------------------|--------------------|-----------------------|-----------------| | 4 | | | | | 8 | | | | | 12 | | | | | 36 | | | | | 60 | | | |
**Graph Explanation:**

**Graph 1: Firm's Short-Run Supply**
- The graph shows a plotted line representing the firm's short-run supply curve. 
- The axes are labeled as "PRICE (Dollars per jacket)" on the vertical axis, with values ranging from 0 to 80, and "QUANTITY (Thousands of jackets)" on the horizontal axis, ranging from 0 to 80.
- Orange square symbols are used to mark specific points along the supply curve where the firm has positive output.

**Graph 2: Industry's Short-Run Supply and Demand**
- This graph includes two curves: the "Demand" curve and the "Industry's Short-Run Supply" curve.
- The axes are labeled the same way as in the first graph, with the same range values.
- The Demand curve is a downward-sloping line, marked in blue.
- The Industry's Short-Run Supply curve is shown using orange squares.
- A black plus symbol marks the "Equilibrium" point where the supply and demand curves intersect.
- Dashed drop lines from the equilibrium point extend to both axes, showing equilibrium price and quantity.

**Instructions:**

1. **Graph 1:**
   On the provided graph, plot the firm's short-run supply curve using orange points (square symbol) at prices where output is positive.

2. **Graph 2:**
   Use orange points to plot the industry's short-run supply curve on the second graph where prices yield positive output. 
   
   Add a black plus symbol to indicate the equilibrium point for price and quantity in the market.

**Scenario:**
- Assume there are 9 firms in the industry, each with the same cost structure as shown.

**Conclusion:**

At the current short-run market price, firms will _______ in the short run. In the long run, _______ .
Transcribed Image Text:**Graph Explanation:** **Graph 1: Firm's Short-Run Supply** - The graph shows a plotted line representing the firm's short-run supply curve. - The axes are labeled as "PRICE (Dollars per jacket)" on the vertical axis, with values ranging from 0 to 80, and "QUANTITY (Thousands of jackets)" on the horizontal axis, ranging from 0 to 80. - Orange square symbols are used to mark specific points along the supply curve where the firm has positive output. **Graph 2: Industry's Short-Run Supply and Demand** - This graph includes two curves: the "Demand" curve and the "Industry's Short-Run Supply" curve. - The axes are labeled the same way as in the first graph, with the same range values. - The Demand curve is a downward-sloping line, marked in blue. - The Industry's Short-Run Supply curve is shown using orange squares. - A black plus symbol marks the "Equilibrium" point where the supply and demand curves intersect. - Dashed drop lines from the equilibrium point extend to both axes, showing equilibrium price and quantity. **Instructions:** 1. **Graph 1:** On the provided graph, plot the firm's short-run supply curve using orange points (square symbol) at prices where output is positive. 2. **Graph 2:** Use orange points to plot the industry's short-run supply curve on the second graph where prices yield positive output. Add a black plus symbol to indicate the equilibrium point for price and quantity in the market. **Scenario:** - Assume there are 9 firms in the industry, each with the same cost structure as shown. **Conclusion:** At the current short-run market price, firms will _______ in the short run. In the long run, _______ .
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