The economic consultant Never Wrong Ltd seeks your advice on what would be a profit-maximising strategy for two of its clients. These clients are firms that operate in perfectly competitive markets....

The economic consultant Never Wrong Ltd seeks your advice on what would be a profit-maximising strategy for two of its clients. These clients are firms that operate in perfectly competitive markets. The marginal cost of both firms increases with the quantity of output they supply. ATC for both firms is U-shaped with the quantity of output. MC intersects ATC at the minimum point of ATC. Further information regarding the firms’ costs and revenues, at current levels of output, is presented in the following table: FIRM 1 FIRM 2 Price 10 10 MR 10 10 MC 15 5 ATC 5 10 What would you advise each firm to do: a increase output b decrease output c shut down operations in the long run d seek new cost and price data due to measurement error in the original data