Question

Quantity	Total Revenue	Marginal Revenue	Total Cost	Marginal Cost	Fixed Costs	ATC	Average Fixed Costs	Average Variable Costs
0	0	-	10	-	10	-	-	-
1	8		24	14		24
2	16		34	10		17
3	24		42	8		14
4	32		49	7		12.25
5	40		57	8		11.4
6	48		67	10		11.17
7	56		81	14		11.57
8	64		99	18		12.38
9	72		123	24		13.67

1. At a price of $10, and assuming the price doesn't increase in the future, should the firm continue to produce in the short-run or shut down in the short-run? Should the firm continue in the long-run or exit in the long-run?

   		Continue to operate in both the short-run and also in the long-run.
   		Continue to operate in the short-run but exit in the long-run
   		Shut down in the short-run but continue in the long-run
   		Shut down in the short-run and also exit in the long-run

QUESTION 7

1. 2b. At a price of $8, What is the profit-maximizing number the firm should produce each day? (Again, do not necessarily just look at economic profit. Look at marginal revenue and marginal cost.)

QUESTION 8

1. At a price of $8, and assuming the price doesn't increase in the future, should the firm continue to produce in the short-run or shut down in the short-run? Should the firm continue in the long-run or exit in the long-run?

   		Continue to operate in both the short-run and also in the long-run.
   		Continue to operate in the short-run but exit in the long-run
   		Shut down in the short-run but continue in the long-run
   		Shut down in the short-run and also exit in the long-run

QUESTION 9

1. 3i. What is the minimum market price for which the firm would chose to produce a positive quantity and take a loss? (round to the nearest penny)

QUESTION 10

1. Assuming this is a perfectly competitive industry, what will be the long-run market price? (round to the nearest penny)

Answer 1

1. At price of 10 $ , the firm should “Continue to operate in the short-run but exit in the long-run”

The firm should continue to operate in short run (at point where MR = MC = 10 $) as it can cover its AVC of 9.50 $ in short run but in long run it should exit as the ATC is above the MR or Price of 10 $.

Question 7

2b

At the price of 8 $, the firm will produce 5 units (the profit maximizing output will be produced or will take place where MR = MC)

Q8.

At price of 8 $, the firms should “Shut down in the short-run and also exit in the long-run”

At price of 8 $ where MR = MC, the ATC and AVC is above the market price, so the firms should shut down in short run and must exit in long run.

Q.9

The minimum market price for which the firm would chose to produce a positive quantity and take a loss is 9.40 $

At this price of AVC, the firm will continue to operate in short run and takes loss, because below it the shutdown takes place and above it can continue to operate at loss.

Q10.

The long run market price will be at that point where Price = Minimum ATC = 11.17 $. At this point it earns zero economic profits.