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Consider a perfectly competitive market for shirts. The following graph shows the daily cost

Home Consider a perfectly competitive market for shirts. The following graph shows the daily cost

Consider a perfectly competitive market for shirts. The following graph shows the daily cost

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  • 01/02/2019

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In the perfect competitive market

The profits are maximum, when the profits are equal to the marginal cost.

A). In this question, the maximum profits of the firm are $18, when the firm is producing the output quantity of 54000 units.

b). at the price of $18, the average total cost of the company is $13.

Thus, the economic profit earned by the company is

Economic profit: quantity* (Price- average total cost)

                            : 54000* (18$-13$)

Economic profit: $2,70,000.

The economic profits of the company can be showed in the graph in the area of P1XYZ.

 

The firm is in equillibrium if they are earning the total revenue of $432000, thus the average cost of the company is $8 at this level of output of 36,000 units.

The company will bear the losses, if they will produce the output of 18000 units, thus average variable cost will not be recovered by the company. So, it is the shut down price for the company. They have to seize the production.

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