Evaluating a Firm's Expansion Decision

A t-shirt printing company invests in new machinery, increasing its production to 500 shirts per day. Due to increased competition from other companies also expanding, the market price for a printed t-shirt falls to $12.00. The company's average cost to produce one shirt at this new output level is $10.50. What is the company's total daily economic profit under these new conditions?

Profit Dynamics After Market-Wide Expansion

A company increases its production capacity, which contributes to a market-wide increase in supply and a subsequent drop in the market price. If the new, lower market price is still above the company's new average cost of production, the company's total daily profit will necessarily be higher than it was before the expansion.

Analyzing the Consequences of Capacity Expansion

Following a market-wide expansion in production capacity, the equilibrium price for artisanal coffee beans has settled at $15 per pound. Four local roasters have also adjusted their operations. Based on their new daily output and average costs provided below, match each roaster to its correct economic outcome.

• Roast & Co.: Produces 100 pounds/day at an average cost of $13/pound.
• Bean Scene: Produces 150 pounds/day at an average cost of $15/pound.
• Ground Up: Produces 80 pounds/day at an average cost of $16/pound.
• Perkatory: Produces 120 pounds/day at an average cost of $12/pound.

Analyzing Profit Dynamics in an Expanding Market

A smartphone case manufacturer expands its factory, increasing its daily output to 5,000 cases. A simultaneous industry-wide expansion causes the market price per case to fall to $4.50. If the manufacturer's total daily economic profit is now $1,250, its average cost to produce each case must be $____.

In a competitive market, a wave of optimism leads many producers of a specific good to simultaneously invest in expanding their production capabilities. Arrange the following events in the logical causal sequence that would follow this market-wide expansion.

Following a market-wide increase in supply from new competitors, the equilibrium price for a custom phone grip has fallen to $8.00. A company that also recently expanded its operations finds its average cost to produce one grip is now $7.50. To achieve a total daily economic profit of $400, how many phone grips must the company produce and sell each day?