Final answer:
The profitability of a computer-selling online company is analyzed by determining the zero-profit and shutdown points and by assessing profit or loss at different selling prices. A graph with AC, MC, and AVC curves can illustrate the financial outcomes for prices of $500 and $300, demonstrating whether the company is making a profit or incurring a loss.
Step-by-step explanation:
In evaluating the profitability of an online company that sells computers, several key concepts are analyzed: the zero-profit point, the shutdown point, and the profit or loss made at different selling prices. The zero-profit point is the price at which total revenue equals total costs, resulting in no profit. The shutdown point is the price at which the company must cease operations to prevent losses; typically, this is where price equals the average variable cost.
When a company sells computers for $500, whether it makes a profit or incurs a loss depends on its total costs, average cost (AC), marginal cost (MC), and average variable cost (AVC). To visualize this, one must sketch a graph with these cost curves plotted against quantity. If the average cost at the chosen quantity is below $500, the firm makes a profit; otherwise, it faces a loss.
If the computers are sold for $300, the same principles apply to determine profit or loss. The difference in this scenario is the lower selling price, which might not cover the average cost, thus likely resulting in a loss unless the variable costs are sufficiently low. Graphical representations of these scenarios facilitate a better understanding of the company's financial position.