Reference no: EM131070104

OPERATE or SHUT-DOWN PROBLEM

Perfectly Competitive Market

You are hired as an economic consultant. Your job is to advise clients on the appropriate action to take in the short-run in order to maximize the profits (or minimize the losses) of each firm. The firms you are to analyze produce different products, and each operates independently in a different perfectly competitive market.

You may assume that each is currently operating at an output level where marginal cost is increasing. Fill in the missing information, and make your suggestions about the appropriate action for each firm by placing one of the following symbols in the last row of the table that follows.

Suggestions

C = Currently operating a the correct level of output
I = Increase the level of output
D = Decrease the level of output
SD = Shut down the plant

Firm	A	B	C	D	E	F	G
Price(MR)	$2.50		$3.80		$4.50	$5.00
Output		650	950	700			1,500
TR	$2,500	$1,300		$2,800	$1,800	$4,000	$6,000
TC		$975	$5,035	$2,975
TFC					$300	$1,200
TVC	$1,100			$2,450			$3,000
ATC	$1.40		MINIMUM			$5.50	$5.50
AVC		$1.20	$3.90		$1.50	MINIMUM
MC	$2.75	$1.00		$4.00	$4.50		$5.75
Suggestion