You own four firms that produce different products. The following table summarizes the conditions in each firm. After calculating the missing numbers for each firm, make one of the following four decisions regarding operations in each firm, and explain why a particular decision is reached.
(a) continue producing the same output level
(b) shut down
(c) increase output
(d) decrease output
*hint*- if MR>MC increase; if MR<MC decrease, if MR=MC no change; if AVC>P shut down
Firm P MR TR Q TC MC ATC AVC
A 11 8 20 200 5 9
B 3 1 100 1.5 2.5 2
C 4 2 200 2 7 5
D 8 5 10 70 5 6
To determine the appropriate decision for each firm, we need to calculate the missing values and evaluate the conditions for each firm.
Firm A:
Given: MR = 11, Q = 20, TC = 200
1. Calculate TR: TR = MR * Q = 11 * 20 = 220
2. Calculate MC: MC = ΔTC / ΔQ = (TC - TC') / (Q - Q') = (200 - TC') / (20 - Q')
MC is missing, so we cannot determine the exact value without knowing TC'.
However, we can analyze the relationship between MR and MC based on the hint.
Since MR is greater than MC (11 > MC), we can conclude that MC is less than 11.
3. Calculate ATC: ATC = TC / Q = 200 / 20 = 10
4. Calculate AVC: AVC = VC / Q = (TC - FC) / Q
AVC is missing, so we cannot determine the exact value without knowing FC'.
However, we can analyze the relationship between AVC and P based on the hint.
If AVC is greater than P (P > AVC), it would be profitable to shut down.
Since AVC is missing and we do not know P, we cannot determine the outcome.
We cannot make a decision for Firm A without the missing values (MC and AVC) or the price level (P).
Firm B:
Given: MR = 3, Q = 100, MC = 1.5
1. Calculate TR: TR = MR * Q = 3 * 100 = 300
2. Calculate TC: TC is missing.
3. Calculate ATC: ATC is missing.
4. Calculate AVC: AVC is missing.
We do not have enough information to make a decision for Firm B since we are missing TC, ATC, and AVC.
Firm C:
Given: MR = 4, TR = 2, Q = 200, MC = 2
1. Calculate TC: TC is missing.
2. Calculate ATC: ATC = TC / Q = TC / 200
ATC is missing, so we cannot determine the exact value without knowing TC.
3. Calculate AVC: AVC = VC / Q = (TC - FC) / Q
AVC is missing, so we cannot determine the exact value without knowing FC.
4. Analyze the relationship between MR and MC based on the hint:
Since MR is less than MC (4 < 2), we can conclude that MC is greater than 4.
Based on the hint, if MR < MC, we should decrease output.
Therefore, the decision for Firm C would be to decrease output.
Firm D:
Given: MR = 8, TR = 5, Q = 10, TC = 70, MC = 5
1. Calculate ATC: ATC = TC / Q = 70 / 10 = 7
2. Calculate AVC: AVC = VC / Q = (TC - FC) / Q
AVC is missing, so we cannot determine the exact value without knowing FC.
3. Analyze the relationship between MR and MC based on the hint:
Since MR is greater than MC (8 > 5), we can conclude that MC is less than 8.
4. Analyze the relationship between AVC and P based on the hint:
Since AVC (missing) is not greater than P (missing), we cannot determine if shutting down is profitable or not.
Based on the hint, if MR > MC, we should increase output.
Therefore, the decision for Firm D would be to increase output.
In summary:
Firm A: Not enough information to make a decision.
Firm B: Not enough information to make a decision.
Firm C: Decrease output.
Firm D: Increase output.
To make a decision for each firm, we need to calculate the missing numbers in the table and then consider the conditions given for each decision.
First, we need to calculate the missing TR (total revenue) for each firm. TR is calculated by multiplying the quantity (Q) by the corresponding price (P). However, the price is not given in the table, so we need additional information to calculate the missing TR.
Next, we can calculate the missing ATC (average total cost) for each firm. ATC is calculated by dividing the total cost (TC) by the quantity (Q).
Let's calculate the missing values:
For Firm A, TR = MR * Q. Since TR is missing, we need additional information to calculate it.
For Firm B, TR = MR * Q. Again, TR is missing.
For Firm C, TR = MR * Q. Once more, TR is missing.
For Firm D, TR = MR * Q. One more time, TR is missing.
Now, let's move on to calculating the missing ATC values:
For Firm A, ATC = TC / Q. The ATC is missing.
For Firm B, ATC = TC / Q. The ATC is missing.
For Firm C, ATC = TC / Q. The ATC is missing.
For Firm D, ATC = TC / Q. The ATC is missing.
Without the missing TR and ATC values, we cannot make a decision for each firm. Please provide the missing information, and I will be able to guide you through the decision-making process.