Final Project Assignment Example | Topics and Well Written Essays - 250 words

Final Project - Assignment Example Pricing is determined by the extra cost incurred in producing one extra unit of the commodity such that price is equated to marginal cost i.e. Price=MC.Since the main objectives of these firms is to maximize profit the following measures are appropriate for the respective firms. Firm 1: This firm should retain its price at 4 units and maintain it’s AVC at 3units so that it can maximize profit and minimize loss. This is because as long as P>AVC the firm will recover its cost of operation plus extra revenue which goes to profit. Firm 2: In this firm the price is 10 which equals MC at 10 and therefore qualify to be in the competitive market but since VC>TR it will make losses as the firm is not even meeting the break-even point. The policy to be adopted by the firm is to reduce the variable cost and squeeze the fixed cost which is not affected by the variations in output. Firm 3: In this firm the losses arises from employing many variable factor inputs which outweigh the fixed and therefore the best recommendation is a freeze in employing variable factor inputs like reducing the casual labor size. Firm 4: In this firm the price (25) is greater than AVC i.e. P>AVC and this already ensures that it beat the break-even point. This is responsible for its zero economic profit. For the firm to do better it either maintains its current output or reduce price. In a monopoly market, the firm tends to be the sole seller and therefore have power to give any price through manipulating of the output (Hall, Robert & Marc, p 64). Under this market structure, for profit maximization the MC=MR. In this respect the firms above needs the following