Suppose a chemical firm is producing 100 units of output with

MC = $8, AVC = $7, and ATC = $9.

The prevailing price of the product in the market is $8.50.

There are many substitutes for this firm's product, so that this

firm's sales would fall dramatically if it tried to raise the price.

Question 1: In order to maximize short-run profits (or minimize

short-run losses if that is the best the firm can do), what should

the firm do?

Question 2: Suppose that the prevailing price is now below $7 so

that the price is below AVC. What should the firm do?