In a perfectly competitive market, the price of a taco is $3.00 each. For Juan’s food...

In a perfectly competitive market, the price of a taco is $3.00 each. For Juan’s food truck, when it produces 100 tacos, the average variable cost of one cupcake is $2.7; the average fixed cost of one taco is $0.5. Juan should: Group of answer choices raise his prices above the perfectly competitive level. only produces in the short run. shut down immediately. only produces in the long run continue producing in the short and long run.

Solutions

Expert Solution

Answer :

only produces in the short run

Explanation :

ATC =AVC +AFC

=2.7+0.5

=3.2

Perfectly competitive firms are price taker so they charge price as market price. They cannot charge more than that price as they face horizontal demand curve.

Firm shutdowns when Price is less than average variable cost. Here price is greater than average variable cost so firm will produce.

Because price is less than ATC, firm will produce in short run only. Because when price is less than average total cost in long run firm will exit the industry.

Rahul Sunny answered 2 years ago

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