Refer to Figure 12-4. If the market price is 30, should the firm ...

[roselinechinyere27m]

Refer to Figure 12-4. If the market price is 30, should the firm represented in the diagram continue to stay in business?
 
  A) No, it should shut down because it cannot cover its variable cost.
  B) Yes, because it is making a profit.
  C) No, it should shut down because it is making a loss.
  D) Yes, because it is covering part of its fixed cost.

Question 2

Central Grocery in New Orleans is famous for its muffaletta, a large round sandwich filled with deli meats and topped with a tangy olive salad. Suppose the following table represents cost and revenue data for Central Grocery.
 
  Fill in the columns for TR, MR, MC, ATC, and profit. If Central Grocery wants to maximize profits, what price should it charge for a muffaletta, what quantity should it sell, and what will be the amount of its total profit?
 
  Muffalettas Sold per Day Price (P) Total Revenue (TR) Marginal Revenue (MR) Total Cost (TC) Marginal Cost (MC) Average Total Cost (ATC) Profit
   0 15 12
   1 14 18
   2 13 20
   3 12 21
   4 11 23
   5 10 26
   6 9 30
   7 8 35
   8 7 42
   9 6 52
   10 5 78

[Smiles0805]

Answer to Question 1

D

Answer to Question 2

Muffalettas Sold per Day Price (P) Total Revenue (TR) Marginal Revenue (MR) Total Cost (TC) Marginal Cost (MC) Average Total Cost (ATC) Profit
0 15 0 --- 12 --- --- -12
1 14 14 14 18 6 18.00 -4
2 13 26 12 20 2 10.00 6
3 12 36 10 21 1 7.00 15
4 11 44 8 23 2 5.75 21
5 10 50 6 26 3 5.20 24
6 9 54 4 30 4 5.00 24
7 8 56 2 35 5 5.00 21
8 7 56 0 42 7 5.25 14
9 6 54 -2 52 10 5.70 2
10 5 50 -4 78 26 7.80 -28

To maximize profits, Central Grocery should produce the quantity where MR = MC, which is 6 muffalettas. The price is therefore 9, and the total profit is 54 - 30 = 24.