ib-economics-quantitative

Question 5.7From the above diagram, find the profit per unit and the total profit at each of the followinglevels of output:a) 50 unitsb) 100 unitsc) 150 unitsd) 200 unitse) 300 unitsf) 350 unitsCalculate the short run shut-down price and the break-even price from a set of data.Step 1Use the information below to identify the necessary data from the table of data given.Firms will shut down in the short run if they cannot cover their variable costs. So, the shutdownprice is where the price that a firm gets for their good is equal to the average variablecost. It is actually the lowest point on the AVC curve.Firms will break-even, in the long run, if they produce at the level of output where price isequal to average total cost. It is actually the lowest point on the ATC curve.E.g.Output AVC ATC100 $18 $22.00200 $15 $18.60300 $12 $15.20400 $12 $15.00500 $15 $17.70600 $17 $19.50In the above table, the lowest value of AVC is $12, and so the firm would shut down ifthey could only sell at a price below $12.In the table above, the lowest value of ATC is $15. This is the break-even price. Afirm would shut down in the long run if they could only sell at a price below this.Now you have a go!!Question 5.8In the following examples:i. Is the firm making profits?ii. Will the firm close down in the short run?iii. Will the firm close down in the long run?a) Firm AQuantity Price AVC ATC200 $20 $18 $22Produced by Ian Dorton & Jocelyn Blink Page 39