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When should a firm shut down production?

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A company's marginal cost curve is MC = 10 +20Q

MC is the cost (dollars) of producing the Qth unit of its product and Q is the number of units of its product produced per day. The price of a unit of its product is $8.

A student at a local business school who works for the firm during the summer argues that, on the basis of this evidence , the firm would make more money by shutting down than continuing to operate. Do you agree? explain.

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Solution Preview

The student is correct. The more the firm produces, the more money it loses.

Profit is maximized (or, in this case, loss is minimized) when MR = ...

Solution Summary

This solution determines whether a firm would do better to shut down production than to continue to operate.