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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 Summary

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

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 = ...

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