Question

 6. Deriving the short-run supply curve

 Consider the competitive market for dress shirts. 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.

 For each price in the following table, use the graph to determine the number of shirts 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 shirts 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.

 On the following graph, use the orange points (square symbol) to plot points along the portion of the firm's short-run supply curve that corresponds to prices where there is positive output. (Note: You are given more points to plot than you need.)

 Suppose there are 9 firms in this industry, each of which has the cost curves previously shown.

 On the following graph, use the orange points (square symbol) to plot points along the portion of the industry's short-run supply curve that corresponds to prices where there is positive output. (Note: You are given more points to plot than you need.) Then, place the black point (plus symbol) on the graph to indicate the short-run equilibrium price and quantity in this market.

 Note: Dashed drop lines will automatically extend to both axes.

 At the current short-run market price, firms will _______  in the short run. In the long run, _______ .

Answer 1

Price	Quantity	Produce	Profit
4	24000	Shutdown	Loss
8	32000	Shutdown	Loss
12	36000	Produce or Shut down	Loss
36	48000	Produce	Break even
48	52000	Produce	Profit
60	56000	Produce	Profit

Price	Quantity
8	32
12	36
36	48
48	52
60	56

Price	Supply
8	288
12	324
36	432
48	468
60	504

The short-run supply is the rising portion of the MC curve above the minimum of the AVC curve.

Supply=short run supply * 9

Make an economic profit

Firms will enter the market