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The following table shows the total output, total revenue, total variable cost, and total fixed cost of a firm. What level of output should the firm produce? Should it shut down? Should it exit the industry? Explain.

Output

Total revenue

Total variable cost

Total fixed cost

1

$1,000

$1,500

$500

2

$2,000

$2,000

$500

3

$3,000

$2,600

$500

4

$4,000

$3,900

$500

5

$5,000

$5,000

$500
Firm will produce 3 unit of output optimally as at this output profit is maximized and will incur a profit of 3000 -( 2600 500 ) = – 100 . i.e Firm will incur a loss of 100. Hence , if firm stay in the industry and continue production , it will make a loss of100…

f firm shut down and exit the industry , then it will incur a fixed cost of 500 and hence make a loss of 500 Hence , it is beneficial to not shut down and stay in the industry.

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