The following graph represents the situation of Sindbad’s caps, a firm selling caps in the perfectly competitive caps industry

Assignment Questions

Question 1

The following graph represents the situation of Sindbad’s caps, a firm selling caps in the perfectly competitive caps industry.

1) How much output should Sindbad produce to maximize his profit, if the market price is equal to $11?

2) How much profit (loss) will he earn?

3) Indicate the profit (loss) area on the graph.

4) Suppose Sindbad decides to shut down. What would his loss be?

Question 2

John produces table lamps in the perfectly competitive desk lamp market.

1) Fill in the missing values in the following table:

2) Suppose the equilibrium price in the desk lamp market is $30. How many table lamps should John produce? How much profit will he make?

3) If next week the equilibrium price of desk lamps drops to $15, should John shut down? Explain.