A perfectly competitive firm’s cost of producing q units of output is T C = 18 + 4q + q2. Its corresponding marginal cost is MC = 2q + 4.
A) The firm faces a market price p = $24. Create a spreadsheet with q = 0,1,2,...,15 where the columns are q, TR, TC, TV C, ATC, AV C, MC, and profit. Determine the profit-maximizing output for the firm and the corresponding profit. Should the firm produce this level of output or should it shut down? Explain.
B) Suppose the competitive price declines to p = $12. Repeat the calculations of part a. Should the firm shut down?