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Assignment 3 Dora.docx

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Queen's University
ECON 111

A3-6 False It is true that firms operating in a perfectly competitive market can sell as much as they produce at the market price. However, they should stop producing more when the marginal cost of production equals the market price. The firm has reached a position in which its profits are maximized at that time, and it has no incentive to produce more. A3-7 Uncertain In terms of project 1, if $150M is a sunk cost, then the firm cannot recover the cost of selling it. In this case, the firm should go ahead with project 1 as long as the market price of its product exceeds its AVC; the alternative way of closing down and earning no revenue is less profitable. Conversely, if the $150M is not a sunk cost, which means the firm can recover the cost of selling it. In this case, it would be better to sell project 1, recover the fixed cost $150M, and exit the industry. In terms of project 2, since revenue ($200M) > total cost ($100M), the firm should go ahead wit
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