Question

4. Please use your table to answer the following questions:

a. At what price and quantity is the profit maximization, loss minimization output point? Why?

b. According to your response from a) what range of profit is this firm earning at that output point? Please briefly describe that range.

c. At what price and quantity would this firm consider shutting down to minimize losses? Why?

P	Q	TR	ATR	MR	FC	VC	TC	ATC	AVC	MC	π
0	0	0	--	--	48	0	48	--	--	--	-48
16	3	48	16	16	48	28	76	25.33	9.33	9.33	-28
16	6	96	16	16	48	48	96	16	8	6.67	0
16	9	144	16	16	48	96	144	16	10.67	16	0
16	12	192	16	16	48	240	288	24	20	48	-96
16	15	240	16	16	48	432	480	32	28.8	64	-240

Answer 1

A.

Profit maximising quantity : 9.

Price : 16.

Why?

Firm maximises it's profit where MR equals MC. Here at quantity 9, MR equals MC. And at that quantity price equals 16.

B.

Zero economic profit.

Because at that quantity price equals ATC. But it can be earning positive accounting profit because accounting cost are less than economic cost.

C.

Shutdown price : 8.

Why?

Minimum AVC is shutdown price. Because when price is below average variable cost firm is not able to cover its variable cost thus it loss equals to fixed cost and some portion of variable cost. But when it will shutdown it loss will be equal to fixed cost only.