Final answer:
To determine if Pell Corporation is making a profit or loss at a price point, compare the total revenue to the total cost. Profit is made when the total cost is less than the selling price times the quantity sold; a loss occurs when it is greater. A graph of AC, MC, and AVC can visualize this relationship and indicate the zero-profit and shutdown points.
Step-by-step explanation:
Determining Profit or Loss for Pell Corporation
When determining if Pell Corporation is making a profit or loss at a certain price point, we must consider the total revenue and compare it to the total cost. Selling computers at $500 each, if the total cost to produce the computers is less than $500,000 (since we're talking thousands of units), the company will make a profit. Conversely, if the total cost is higher, there will be a loss.
Regarding the sale price of $300, we apply the same logic. If the total cost per thousand units is less than $300,000, Pell Corporation makes a profit; otherwise, it encounters a loss. To illustrate this with a graph, one would typically sketch the Average Cost (AC), Marginal Cost (MC), and Average Variable Cost (AVC) curves. The point where price and AC intersect represents the zero-profit point, whereas the price where AVC intersects the price level could be considered the shutdown point, assuming it covers the variable costs.
Through graphing, the area between price and AC (above the curve) at the quantity sold represents the profit, while any area below the curve represents a loss. The exact profit or loss can be calculated by subtracting total costs from total revenue.