Question

Same price being $85 per unit instead of $300.

TC:Total Q: Units Produced | Cost TFC: Total F ixed Cost AFC: Average Fixed Cost Total Variable Cost AVC: ATC: Average Average Variable Total Cost Cost SMC : Short | AP: TR: Total MR: Marginal TP: Total, run Marginal Revenue Revenue Profit Cost Profit Average MP: Profit Margin Logical Formula TVC+TFC TFC/ Q TVC/Q *585*0 Excel Formula for 200 units > C8/A8 D8/A8 or | O 100 200 300 400 500 600 700 800 900 1000 | 6000 12000 15000 21000 33000 48000 65000 83000 102000 123000 158000 6000 6000 6000 6000 6000 6000 6000 6000 6000 6000 6000 6000 9000 15000 27000 42000 59000 77000 96000 117000 152000 *Change in TP/ TC/Q *Change in TC/ *Change in TR/ TR-IC TP/Q Change in Q Change in Q change in Q AFC+AVC MR-MC B8/A8 (K8-K7)/(A8-A7) (B8-87)/(A8-A7) A8*300 (18-17)/(A8-A7) 18-58 K8/A8 E8+F8 J8-H8 | Infinity NA O NA -6000 Infinity 120.0 60.0 8500 85.01 - 3500 35.0 25.01 L 75.0 30.0 17000 85.0 2000 10.0 55.0|| 70.00 60.00 25500 85.0 45001 15.0 25.0 82.5 120.0 34000 85.0 1000 2.5 -35.0 96.0 150.0 42500 85.00 -5500 -11.00 -65.0 108.3 170.00 51000|| 85.01 - 14000 -23.3 -85.0 118.6 180.0 59500 85.0 -23500 -33.6 -95.0 127.5 190.0 68000 85.0 - 34000 -42.5 -105.0| 136.71 210.0 76500 85.00 -46500 -51.7 -125.0| 158.0 350.00 85000 85.0 -73000 -73.0 -265.00 Infinity 60.0 30.0 20.0 15.0 12.0 10.0 8.6 8.6 7.5 6.7 6.7 6.0 NA 60.0 45.0 50.0 67.5 84.0 98.3 110.0 120.0 130.0 152.0

5.

Make another copy of your spreadsheet and suppose that fire pits fall out of fashion causing prices fall worldwide to $85. How many units should the manager choose to produce? Explain.

Should the firm shut down in the short-run? Explain in detail why or why not.

Should the firm shut down in the long run? Explain in detail why or why not.

Answer 1

5.

A.

Manager should produce at the level where the P = MR = MC

After the 300 units of output, the MC becomes bigger than the Price of $85. So, manager should produce an output of 300 units to maximize the profit.

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B.

No, firm is earning positive economic profit in the short run and price is much more than the average variable cost. It is $4500 profit at the output of 300 units as per the given excel sheet. So, firm will not shut down.

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C.

No, firm will not shut down as it is earning positive economic profit and price is more than the ATC. Due to this reason, more firm will join the industry and economic profit will be zero in the long run equilibrium. At this level, price is equal to ATC and firm will not shut down.