3. Profit Maximization in the Short Run (10pts): Consider the fol...

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3. Profit Maximization in the Short Run (10pts): Consider the following data for a firm, showing output and total costs. Assume this firm seeks to maximize profits and uses the MR=MC RULE to find its profit-maximizing (or loss minimizing) level of output. Total fixed costs (TFC) for this firm $235. You must show all of your work where calculations are required and you must include a brief explanation of approximately 20-30 words for written answers to receive full credit:

Output (Q) Total Costs (TC) Marginal Cost (MC)
0 $235 --
1 $300
2 $355
3 $405
4 $452
5 $500
6 $552
7 $610
8 $680
9 $760
10 $860
11 $990
12 $1,150
a. Fill in the column for MC to complete the table above (2pts). Explain the calculation.

b. (4pts) Suppose that this company can sell all units of their product at a price of $130.00.   Thus, marginal revenue, MR, equals $130.
i) What is the profit-maximizing (loss minimizing) level of output for this firm in the short run?
ii) Calculate the total economic profit (or loss) that this firm would receive at this particular level of output. You must show all of your work to receive full credit
iii) Should this firm continue to produce or should it shut down in the short run? Why?

c. (4pts) Assume instead that this firm can sell all units at a price of $70. Thus $70 is MR, marginal revenue.
i) What is the profit-maximizing (loss minimizing) level of output for this firm in the short run?
ii) Calculate the total economic profit (or loss) that this firm would receive at this particular level of output. You must show all of your work to receive full credit
iii) Should this firm continue to produce or should it shut down in the short run? Why?.

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