PAYOT, Quincy A.

BSA-2

August 1, 2011

ECON 21 3:30-4:30 PM MWF

a. Yes, it will continue producing in the short run because the price is above the average variable cost. The profit maximizing output for the price of $56 is 8 units. Every unit of output up to and including the eighth unit represents greater marginal revenue than marginal cost of output. The firm will realize an economic profit of $63. b. Yes, it will continue producing in the short run because the price of $41 is above the average variable cost of $37. The profit maximizing output for the price of $41 is 6 units. Every unit of output to and including the sixth unit represents greater marginal revenue than marginal cost of output. The firm will realize an economic loss of $39.

d.

c. No, it will not continue producing in the short run because price is less than the average variable cost. If the price will be set at $32, the firm will incur an economic loss of -$60.