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    Short-run & long-run output decisions for a loss-making firm

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    You are given the following cost data:
    Total fixed costs are 100.

    q TVC
    0 0
    1 5
    2 10
    3 20
    4 40
    5 65
    6 95

    If the price of output is $15, how many units of output will this firm produce? What is total revenue? What is total cost? Briefly explain using the concept of marginal cost. What do you think the firm is likely to do in the short run? In the long run?

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    Solution Preview

    See the attached file. A firm maximizes its profits or minimizes its losses when MR = MC. This firm will choose to ...

    Solution Summary

    This solution shows how a loss-making firm can use marginal analysis to minimize its loss in the short run, and decide what to do in the long run.