In the fifth season of The Office, Michael Scott leaves his job as regional manager to start his own paper company, The Michael Scott Paper Company. Let's assume (counter to the TV show) that the paper industry is extremely competitive, such that the market price for paper is $3 per ream. Michael Scott, little known fact, took an excellent microeconomics class and knows profits are maximized where marginal benefit (in this case price) equals marginal cost (in this case 0.0002q per week). Michael's variable costs are 0.0001*q^2 and his fixed costs, including labor, rent, etc. comes to $20,000 per week. Michael comes to you, his most trusted advisor, to break the tie---Jim is telling him to shutdown and Dwight is telling him to continue to produce (and maybe sell some beets). What Should Michael do?
- Michael is making a profit in the short-run but will likely make a loss in the long-run so he should shutdown now
- Michael is making a profit so he should continue to produce in the long- and short run
- Michael is making money with every sale but not covering his fixed costs. He should continue to produce in the short-run but should shutdown or change something in the long-run
- Michael is making a loss in the short-run but will likely make a profit in the long-run so he should continue to produce
- Michael is losing money with every sale of paper so he should shutdown immediately
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