Understand the short-run production decision rule.

In the short run, a firm should continue to operate if the market price (P) is greater than or equal to its average variable cost (AVC). If P is less than AVC, the firm should shut down to minimize losses, as it cannot even cover its variable costs. If the firm shuts down, its loss will be equal to its total fixed costs (TFC). If it continues to operate, it will choose the output level that maximizes profit or minimizes loss.

The table provides Total Production (TP), Price (P), Total Revenue (TR), Total Fixed Cost (TFC), Total Variable Cost (TVC), Average Variable Cost (AVC), Total Cost (TC), and Total Economic Profit ($\Pi$). The market price is N81.

• TP = 0 (Shut down):

  • TR = N0
  • TFC = N100
  • TVC = N0
  • TC = N100
  • $\Pi$ = TR - TC = N0 - N100 = -N100. This is the loss if the firm shuts down.

• TP = 1: P = N81, AVC = N90. Since P < AVC (N81 < N90), the firm should not produce at this level. $\Pi$ = -N109.

• TP = 2: P = N81, AVC = N85. Since P < AVC (N81 < N85), the firm should not produce at this level. $\Pi$ = -N108.

• TP = 3: P = N81, AVC = N80. Since P > AVC (N81 > N80), the firm can produce. $\Pi$ = -N97.

• TP = 4: P = N81, AVC = N75. Since P > AVC (N81 > N75), the firm can produce. $\Pi$ = -N76.

• TP = 5: P = N81, AVC = N74. Since P > AVC (N81 > N74), the firm can produce. $\Pi$ = -N65.

• TP = 6: P = N81, AVC = N75. Since P > AVC (N81 > N75), the firm can produce. $\Pi$ = -N64.

• TP = 7: P = N81, AVC = N77. Since P > AVC (N81 > N77), the firm can produce. $\Pi$ = -N73.

• TP = 8: P = N81, AVC = N81.25. Since P < AVC (N81 < N81.25), the firm should not produce at this level. $\Pi$ = -N102.

• TP = 9: P = N81, AVC = N87. Since P < AVC (N81 < N87), the firm should not produce at this level. $\Pi$ = -N151.

• TP = 10: P = N81, AVC = N93. Since P < AVC (N81 < N93), the firm should not produce at this level. $\Pi$ = -N220.

The firm aims to minimize its losses. We compare the losses from all viable production levels (where P $\ge$ AVC) and the loss from shutting down (TP=0).

• Loss if shut down (TP=0): -N100
• Loss at TP=3: -N97
• Loss at TP=4: -N76
• Loss at TP=5: -N65
• Loss at TP=6: -N64
• Loss at TP=7: -N73

The smallest loss (or highest profit, in this case, the least negative value) is -N64, which occurs at a production level of 6 units. At this output, P (N81) is greater than AVC (N75), so continuing production is the correct decision.

The firm should continue operating because at the optimal output level (6 units), the price (N81) is greater than the average variable cost (N75). The condition for continuing operation is P $\ge$ AVC. The condition for shutting down is P < AVC.

The production decision for Ebuka's Cement when the market price falls to N81 is to produce 6 units.

The final answer is $\text{Produce 6 units, resulting in a loss of N64}$.