9. A firm has leased plant and equipment to produce video game cartridges, which
ID: 2506712 • Letter: 9
Question
9. A firm has leased plant and equipment to produce video game cartridges, which can be sold in unlimited quantities at $21 each. The following figures describe the associated costs of production: output TC ATC MC 0 50 0 0 1 55 55 5 2 62 31 7 3 75 25 13 4 96 24 21 5 125 25 29 6 162 27 37 7 203 29 41 8 248 31 45(d) What is the profit-maximizing rate of output? (e ) Should the producer stay in business? (f) What if the size of the loss continues? (g) How much is lost if the firm shuts down? 9. A firm has leased plant and equipment to produce video game cartridges, which can be sold in unlimited quantities at $21 each. The following figures describe the associated costs of production: output TC ATC MC 0 50 0 0 1 55 55 5 2 62 31 7 3 75 25 13 4 96 24 21 5 125 25 29 6 162 27 37 7 203 29 41 8 248 31 45
(d) What is the profit-maximizing rate of output? (e ) Should the producer stay in business? (f) What if the size of the loss continues? (g) How much is lost if the firm shuts down?
Explanation / Answer
d) What is the profit-maximizing rate of output?
ANS.- 4 UNITS WHERE MC =MR
(e ) Should the producer stay in business?
ANS.- NO,BECAUSE WHEN PRICE IS LESS THAN AVC A FIRMS LOSS (TFC AND SOME TVC) IS FAR GREATER THAN AT OUTPUT ZERO(TFC). THIS IS SHUT DOWN CONDITION.
(f) What if the size of the loss continues?
ANS.-FIRM SHOULD BE SHUT DOWN
(g) How much is lost if the firm shuts down?
ANS. FIXED COST i.e. $50
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