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.Under the revised forecast how much profit (loss)does Bartech,Inc.expect to earn?

Question

Quizplus · Accepted Answer

With the revised price forecast of $5, which is below the average variable cost (AVC) at any positive level of output (since AVC is minimized at a value greater than $5), Bartech, Inc. would choose not to produce. When a firm does not produce, its loss is equal to its fixed costs, which are $12,000 in this case.

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