Bartech,Inc.is a firm operating in a competitive market.The manager of Bartech forecasts product price to be $28 in 2021.Bartech's average variable cost function is estimated to be $A V C = 10 - 0.003 Q + 0.0000005 Q ^ { 2 }$ Bartech expects to face fixed costs of $12,000 in 2021.Now,suppose that the 2021 price forecast is drastically revised downward to $5.What is Bartech's profit-maximizing (or loss-minimizing)output for 2021?

Question

Quizplus · Accepted Answer

When the price forecast is revised downward to $5, which is below the average variable cost (AVC) at any positive level of output, the firm minimizes its losses by shutting down and producing 0 units. Producing any positive amount would result in losses greater than the fixed costs of $12,000.

Bartech,Inc AVC=10−0.003Q+0.0000005Q2A V C = 10 - 0.003 Q + 0.0000005 Q ^ { 2 }AVC=10−0.003Q+0.0000005Q2

Bartech,Inc $A V C = 10 - 0.003 Q + 0.0000005 Q ^ { 2 }$