A firm is selling 20 units of output at a market price of $31 and has...

A firm is selling 20 units of output at a market price of $31 and has variable cost of $640 and a fixed cost of $500.

In the short run, this firm should

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Expert Solution

We can see that TR = 20 * 31 = $620

TC = 640 * 31 + 500 = $ 20340

Profit = TR - TC = - $19721

So , Firm is making so much loss , but this might not be only reason to leave the market . The core reason is that firmS Average variable cost = 640/20 = $32 is greater than price , this means that firm is not able to even carry out it's variable cost . If this variable cost is less than price , then firm will continue it's business even at a loss but in this case firm will shutdown .

Rahul Sunny answered 2 years ago

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