Question

The Great Wall of China attracts millions of tourists every year, with many vendors selling goods at key tourist destination points. During summer, the vendors all sell icy cold bottled water. Assume the market for bottled water is perfectly competitive. Ji is a vendor in this market who sells 73 bottles (where price equals marginal cost) at the market price of $2, with the average total cost being $2.40 per bottle. The minimum average variable cost is $1.90 per bottle.

Answer the following questions:

Ji’s economic profit or loss is

(use a negative value if a loss). Answer in dollars, rounded to two decimal places (ie: to the nearest cent).

Should Ji shut down? Type Y for Yes, or N for No

.

State whether the following statement is true or false: "Ji needs to minimise her loss of $0.40 per bottle by producing the quantity where price equals her marginal cost." Type T for true, or F for false

Answer 1

Profit = TR - TC

Total Revenue = TR = P *Q

P = 2$

Q= 73

TR= 73*2 = 146

TC = Total cost = Average total cost * quantity

ATC = 2.4$

Q = 73

TC = 2.4*73 = 175.2

Profit = 146-175.2

Profit = -29.2$

When profit is negative it means there is a loss

Loss = 29.2$

Yes ji should shut down

True if Ji wants minimize his loss he should reduce the ATC by 0.4$ . Thus when his price equal to Marginal cost.