Suppose that a firm comes to you with the following information:
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.
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.
Optimal output level=77.5 units
TC (at q=77.5)=(1/70)*77.5^2-(25/35)*77.5+100=130.45
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.