In pure competition, how do you determine the following: a. If the firm should shut down...

In pure competition, how do you determine the following:

a. If the firm should shut down in the short-run.

b. The level of output that a firm should produce.

c. Whether the firm is incurring losses or earning profits?

Solutions

Expert Solution

A) In a perfect competition , firm should shut down basically when it is not able to afford it's variable cost . Or if average varibiable cost of the firm exceeds it's prices . Then Firm should shut down .

B) Firm should basically produce at a level where P = MC .

C) whether firm is occuring losses or earning can be simply be calculted by a profit formula i.e Total Revenue minus Total cost .

Rahul Sunny answered 1 year ago

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