Determine Whether the Following Perfectly Competitive Firm Should Produce Output

question 9

Essay

Determine whether the following perfectly competitive firm should produce output in the short run or temporarily shut down, given:
P = $100
TC = 1,000 + 125Q - .5Q²
Where:
Q = units produced per month
If the firm does not operate, it will lose its $1,000 of fixed costs. What profit or loss will the firm have if it operates where MR = SMC? Does this profit or loss check with your decision on whether to produce or temporarily shut down?

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Definitions:

Logical Approach

A method of problem solving or decision making that is based on clear, rational, coherent, and systematic principles or steps.

Decision Making

The cognitive process of selecting a course of action from among multiple alternatives.

Rational Model

A decision-making framework based on objective analysis, logical reasoning, and clear, structured steps to arrive at a decision.

Best Possible Alternative

A decision-making strategy that aims to identify the most optimal choice available among various options.