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    Finding optimal production level

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    Suppose that a firm comes to you with the following information:

    P=1.5
    TC=(1/70)q^2-(25/35)q+100
    MC=(1/35)q-(25/35)

    i.What is the total profit/loss if the firm stays in business?
    ii.What is the total profit/loss if the firm shuts down?
    iii.Would you recommend that the firm stay in business or shutdown? Why?
    iv.Please graph (i) including the numbers.

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    https://brainmass.com/economics/production/finding-optimal-production-level-327976

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    Solution Preview

    Please refer attached file for graphs and better clarity of tables.

    1.What is the total profit/loss if the firm stays in business?

    A firm will maximize its profits by selecting its output level such that MR=MC.
    In this case P=MR. So, put P=MC to find optimal output level.

    1.5=(1/35)q-(25/35)
    52.5=q-25
    q=52.5+25=77.5
    Optimal output level=77.5 units

    Total Revenue=TR=P*q=1.5*77.5=116.25
    TC (at q=77.5)=(1/70)*77.5^2-(25/35)*77.5+100=130.45

    Total ...

    Solution Summary

    Solution describes the steps to calculate optimal level of output level and checks whether it should continue or shut down its operations at the current level.

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