Question

XYZ.Industry currently has 600 firms, all of which have fixed costs of 6400 and average variable cost as follows:

Quantity        AVC     FC      VC      TC      MC      ATC
4000    2             2       
8000    4               
12000   6               
16000   8               
20000   10              
24000   12              

a. Complete tale 1 by computing variable cost, total cost, marginal cost, and average total cost.
b. Identify the shutdown and breakeven quantities.             
c. Identify the maximizig profit quantity             
d.Compute the profit if the market price is currently $10.           
e. Estimate the market supply           
f. find the break-even quantity


Select one:
a.
Quantity        AVC     FC      VC      TC      MC      ATC
4000    2       6400    640000 646400 2       2.02
8000    4       6400    2560000 2566400 6       4.01
12000   6       6400    5760000 5766400 10      6.00666667
16000   8       6400    10240000        10246400        14      8.005
20000   10      6400    16000000        16006400        18      10.004
24000   12      6400    23040000        23046400        22      12.0033333
b. The shutdown quantity 16000        
c The maximizing profit quantity is 24000
d. The firm profit is 41,520    
e. the total supply is 7,200,000        
f. The Break-even quantity is between 12,000 and 16,000
b.
Quantity        AVC     FC      VC      TC      MC      ATC
4000    2       6400    8000    14400   2       3.6
8000    4       6400    32000   38400   6       4.8
12000   6       6400    72000   78400   10      6.53333333
16000   8       6400    128000 134400 14      8.4
20000   10      6400    200000 206400 18      10.32
24000   12      6400    288000 294400 22      12.2666667
b. The shutdown quantity 4000
c The maximizing profit quantity is 12000
d. The firm profit is 41,520    
e. the total supply is 7,200,000        
f. The Break-even quantity is between 4,000 and 8,000
c.
Quantity        AVC     FC      VC      TC      MC      ATC
4000    2       6400    8000    14400   2       3.6
8000    4       6400    32000   38400   6       4.8
12000   6       6400    72000   78400   10      6.53333333
16000   8       6400    128000 134400 14      8.4
20000   10      6400    200000 206400 18      10.32
24000   12      6400    288000 294400 22      12.2666667
b. The shutdown quantity 16000        
c The maximizing profit quantity is 24000
d. The firm profit is 41,520    
e. the total supply is 7,200,000        
f. The Break-even quantity is between 12,000 and 16,000
d.
Quantity        AVC     FC      VC      TC      MC      ATC
800     2       6400    1600    8000    2       10
1600    4       6400    6400    12800   6       8
2400    6       6400    14400   20800   10      8.66666667
3200    8       6400    25600   32000   14      10
4000    10      6400    40000   46400   18      11.6
4800    12      6400    57600   64000   22      13.3333333
b. The shutdown quantity 16000        
c The maximizing profit quantity is 24000
d. The firm profit is 41,520    
e. the total supply is 7,200,000        
f. The Break-even quantity is between 12,000 and 16,000
e.
Quantity        AVC     FC      VC      TC      MC      ATC
4000    2       6400    640000 646400 2       2.02
8000    4       6400    2560000 2566400 6       4.01
12000   6       6400    5760000 5766400 10      6.00666667
16000   8       6400    10240000        10246400        14      8.005
20000   10      6400    16000000        16006400        18      10.004
24000   12      6400    23040000        23046400        22      12.0033333
b. The shutdown quantity 16000        
c The maximizing profit quantity is 24000
d. The firm profit is 41,520    
e. the total supply is 7,200,000        
f. The Break-even quantity is between 12,000 and 16,000

Answer 1

(a) The table is as follows

Quantity	AVC	FC	VC= AVC*Quantity	TC= VC+FC	MC= Change in TC/ Change in Quantity	ATC= TC/Quantity
4000	2	6400	8000	14400	2	3.6
8000	4	6400	32000	38400	6	4.8
12000	6	6400	72000	78400	10	6.533333
16000	8	6400	128000	134400	14	8.4
20000	10	6400	200000	206400	18	10.32
24000	12	6400	288000	294400	22	12.27

(b) Shutdown price is when the average variable cost is minimum as below that, the variable costs will not get covered. Hence, AVC minimum is 2. Which is quantity= 4000 (Shutdown Quantity)

The breakeven price is the minimum of the Average Total Cost which is at Quantity 4000: as let's say the Price is 3.6 which is equal to the lowest ATC, then the Total Cost= 4000*Avg cost= 4000*3.6

and the Total Revenue will be 40000*3.6 (Price) Hence, 0 profit.

Therefore, the breakeven quantity is between 4000-8000

(C) Market Price is given as 10$

Hence, profit maximization is when Marginal Cost= Marginal Revenue= 10

Hence, Profit maximization is when MC=10, which is 12000 quantity.

(d) Profit = Total Revenue- Total Cost (We will calculate at 12000 units since maximum profit is at that quantity)

Profit= Price*Quantity- ATC*12000

Profit= 10*12000- 6.5333*12000= 120000- 6.54*12000= $41520

(e) Market Supply= Quantity at profit maximization * Total Number of firms ( As all firms would like to produce at profit maximization quantities)

Market Supply= 12000*600= 7,200,000

(f)

The breakeven price is the minimum of the Average Total Cost which is at Quantity 4000: as let's say the Price is 3.6 which is equal to the lowest ATC, then the Total Cost= 4000*Avg cost= 4000*3.6

and the Total Revenue will be 40000*3.6 (Price) Hence, 0 profit.

Therefore, the breakeven quantity is between 4000-8000