Consider Bob’s DVD company described in the previous question. Assume that DVD production is a perfectly competitive industry. For each of the following questions, explain your answers.
a. What is Bob’s break-even price? What is his shut-down price?
b. Suppose the price of a DVD is $2. What should Bob do in the short run?
c. Suppose the price of a DVD is $7. What is the profit-maximizing quantity of DVDs that Bob should produce? What will his total profit be? Will he produce or shut down in the short run? Will he stay in the industry or exit in the long run?
d. Suppose instead that the price of DVDs is $20. Now what is the profit-maximizing quantity of DVDs that Bob should produce? What will his total profit be now? Will he produce or shut down in the short run? Will he stay in the industry or exit in the long run?