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You are given the following data for a shoe manufacturing firm operating in a perfectly competitive market. Average variable cost reaches a minimum of $50 per pair at an output of 200 pairs of shoes per day. Average total cost reaches a minimum of $80 per pair at an output of 300 pairs per day. At an output of 360 pairs per day, marginal cost is $100.
a) Carefully draw a diagram illustrating the cost curves of the above shoe firm.
b) If the market price is $100, what will be the daily output of the firm? Explain why. Carefully indicate on your diagram the area that would capture the profits of the firm and the area that would capture the producer surplus of the firm.
c) If the market price is $80, what will be the daily output of the firm? Explain why. Carefully indicate on your diagram the area that would capture the profits of the firm and the area that would capture the producer surplus of the firm.
d) At what market price or prices would the firm not produce any shoes? Explain why not.
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