You are a consultant on profit maximization. What do you recommend in each of th

Question

You are a consultant on profit maximization. What do you recommend in each of the cases listed in the table below? Each firm operates in circumstances of pure (or perfect) competition, and wants to maximize its profit or minimize its loss. Enough information is supplied in each case, despite the blanks, to provide an answer. Answer for each case by putting one of the numbers 1 through 6 from the code below into the extreme right-hand column of the table. Firm is now at correct position. Firm should increase price. Firm should decrease price. Firm should increase quantity of output. Firm should decrease quantity of output. Firm should shut down operations.

Explanation / Answer

CASE A: To find Q: TC/AC=Q 9,000/1.8=5,000 Q=5,000 P*Q=TR P*5,000=10,000 P=$2 P=MC in this example, so answer 1. Firm is at correct position. CASE B: Find Q from PQ=TR P*1000=5000 P=$5 P=MC in this example, so answer 1. Firm is at correct position. CASE C: ACTC (10,000>8,000), it should remain open. CASE E: Since P

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