Question 5

Management is concerned about profitability, and evaluating a possible shutdown of a subdivision that operates in a competitive industry. You have been asked to give an objective assessment. You note that the market price in this industry is currently $10, and production is completely standardized, so that every firm has the same cost structure, which is captured by the function C = 100 + 0.1Q² (where Q is a firm's output). However, in the long run, it will be possible to make changes to fixed expenses. Taking this into account, if the company continues production after another year, the cost function will be C = 5Q + 0.1Q². With this information in mind, how will you describe the company's profitability in the short run and in the long run?

	a	The firm is making a loss now, but will earn zero profit in the future.
	b	The firm earns zero profit now, and will make a loss in the future.
	c	The firm earns zero profit now, and will earn positive profit in the future.
	d	The firm is earning positive profit now, but will earn zero profit in the future