1.7.

a. A profit-maximizing business incurs an economic loss of

$10,000 per year. Its fixed cost is $15,000 per year. Should it produce or shut down in the short run? Should it stay in the industry or exit in the long run?

b. Suppose instead that this business has a fixed cost of

$6,000 per year. Should it produce or shut down in the short run? Should it stay in the industry or exit in the long run?