A firm has three different production facilities, all of which produce the same product. While reviewing the firm’s cost data, Jasmin, a manager, discovers that one of the plants has a higher average cost than the other plants and suggests closing that plant. Another manager, Joshua, notes that the high- cost plant has high fixed costs but that the marginal cost in that plant is lower than in the other plants. He says that the high- cost plant should not be shut down but should expand its operations. Who is right?
Answer to relevant QuestionsA firm has revenue given by R(q) = 100q – 3q2 and its cost function is C(q) = 100 + 10q. What is the profit-maximizing level of output? What profit does the firm earn at this output level? A firm has to pay a tax equal to 25% of its revenue. Give a condition that determines the output level at which it maximizes its after-tax profit. Why are steps taken by corporate management to avoid takeovers often not in shareholders’ best interests? Consider the following change to Angelo’s situation in the Managerial Solution. Now Angelo can provide loans to only one of the two groups. If he loans to the safer group, he gets his 10% in Year 1 and faces the same ...Beta Laundry’s cost function is C(q) = 30 + 20q + q2.a. What quantity maximizes the firm’s profit if the market price is p? How much does it produce if p = 60? b. If the government imposes a specific tax of t = 2, what ...
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