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Short run, long run planning for sample company

Output= 2000 unit
Total Fixed Cost= $4000
Price of Labor= $80
price of Capital= $320
Marginal Product of Labor= 20
Marginal Product of Capital= 80
Price of output= $8
Long Run Marginal Cost= $8
Average Product of labor= 40

What Advice should be given for Short run and Long run and why? If output rises $10 dollar more what gonna happen in Short run and Long run ?

Solution Preview

In the short run, the firm shuts down if the revenue it gets from producing is less than the variable cost of production.
<br>Shut down if P &lt; AVC
<br>Total Labor = Total Units/ APL = 2000/40 = 50
<br>Total Cost of Labor = 80*$50 = $4000 (= TVC, because ...