Competitive Market

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.

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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 industryAc€?csshort-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 ____________ (shut down/produce) in the short run. In the long run, _______________ (firms will neither enter nor exit/some firms will enter/some firms will exit).