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
What, exactly, is your question? Do a little research then take a shot.
To determine the missing values and make a decision for each firm, we need to analyze the information provided and apply the given conditions. Let's go through each firm one by one:
Firm A:
- Price (P) = $11
- Marginal Revenue (MR) = $8
- Total Revenue (TR) = ?
- Quantity (Q) = 20
- Total Cost (TC) = $200
- Marginal Cost (MC) = $5
- Average Total Cost (ATC) = ?
- Average Variable Cost (AVC) = $9
To find the missing values:
- The formula for Total Revenue (TR) is TR = P x Q. Using the given price and quantity, we have TR = $11 x 20 = $220.
- The formula for Average Total Cost (ATC) is ATC = TC / Q. Using the given total cost and quantity, we have ATC = $200 / 20 = $10.
Now, let's make a decision for Firm A:
- MR ($8) < MC ($5): According to the hint, if MR < MC, we should decrease output.
- Therefore, the decision for Firm A is to decrease the output.
Firm B:
- Price (P) = $3
- Marginal Revenue (MR) = $1
- Total Revenue (TR) = ?
- Quantity (Q) = 100
- Total Cost (TC) = ?
- Marginal Cost (MC) = $1.5
- Average Total Cost (ATC) = $2.5
- Average Variable Cost (AVC) = $2
To find the missing values:
- The formula for Total Revenue (TR) is TR = P x Q. Using the given price and quantity, we have TR = $3 x 100 = $300.
- To find Total Cost (TC), we need to use the formula TC = ATC x Q. Using the given average total cost and quantity, we have TC = $2.5 x 100 = $250.
Now, let's make a decision for Firm B:
- MR ($1) < MC ($1.5): According to the hint, if MR < MC, we should decrease output.
- Therefore, the decision for Firm B is to decrease the output.
Firm C:
- Price (P) = $4
- Marginal Revenue (MR) = $2
- Total Revenue (TR) = $200
- Quantity (Q) = ?
- Total Cost (TC) = ?
- Marginal Cost (MC) = $2
- Average Total Cost (ATC) = $7
- Average Variable Cost (AVC) = $5
To find the missing values:
- The formula for Quantity (Q) is TR / P. Using the given total revenue and price, we have Q = $200 / $4 = 50.
- To find Total Cost (TC), we need to use the formula TC = ATC x Q. Using the given average total cost and quantity, we have TC = $7 x 50 = $350.
Now, let's make a decision for Firm C:
- MR ($2) < MC ($2): According to the hint, if MR < MC, we should decrease output.
- Therefore, the decision for Firm C is to decrease the output.
Firm D:
- Price (P) = $8
- Marginal Revenue (MR) = $5
- Total Revenue (TR) = ?
- Quantity (Q) = 10
- Total Cost (TC) = $70
- Marginal Cost (MC) = $5
- Average Total Cost (ATC) = ?
- Average Variable Cost (AVC) = $6
To find the missing values:
- The formula for Total Revenue (TR) is TR = P x Q. Using the given price and quantity, we have TR = $8 x 10 = $80.
- The formula for Average Total Cost (ATC) is ATC = TC / Q. Using the given total cost and quantity, we have ATC = $70 / 10 = $7.
Now, let's make a decision for Firm D:
- MR ($5) > MC ($5): According to the hint, if MR > MC, we should increase output.
- Therefore, the decision for Firm D is to increase the output.
In summary:
- Firm A: Decrease output
- Firm B: Decrease output
- Firm C: Decrease output
- Firm D: Increase output
These decisions are made based on the comparison of marginal revenue and marginal cost. By analyzing these values, we can determine the most optimal decision for each firm's operations.