Final answer:
The profitability of selling computers at $500 or $300 is determined by comparing the selling price to the company's average cost. Profit or loss is represented graphically via AC, MC, and AVC curves, with intersections indicating zero-profit or shutdown points.
Step-by-step explanation:
The question revolves around determining whether a company is making a profit or loss when selling computers at particular prices and involves sketching graphs to illustrate financial concepts such as Average Cost (AC), Marginal Cost (MC), and Average Variable Cost (AVC). To ascertain if the company is profitable at a selling price of $500, one must compare the selling price to the company's average cost per unit. If $500 exceeds the average cost per unit, the firm makes a profit; otherwise, it incurs a loss. The same assessment applies if the company sells computers at $300 per unit.
To graphically depict this, we need to draw the AC, MC, and AVC curves on a graph, with the vertical axis representing cost and price and the horizontal axis showing quantity. The points where the company's selling price intersects with the AC or AVC curves represent the zero-profit and shutdown points, respectively. A selling price above the AC curve indicates the company is making a profit, while a price below the AC curve indicates a loss. When the price falls below the AVC curve, the company should consider shutting down operations in the short run, as it cannot cover its variable costs. Using the $500 selling price example, the area between the price line and the AC curve represents the magnitude of profit or loss per unit sold. If the firm sells the computers for $300 and the average cost is higher than $300, the firm would incur a loss, the size of which can be visualized as the area between the $300 line and the AC curve.