Consider a profit-maximizing firm operating in a perfectly competitive industry. If the equilibrium market price of...

Consider a profit-maximizing firm operating in a perfectly competitive industry. If the equilibrium market price of the good falls below the minimum of the firm's average total cost curve but is greater than the minimum of its average variable cost curve, the firm:

Group of answer choices

should increase the price of its product in order to increase profits

should increase the price of its product in order to sell more units of output

should shut down and suffer a loss equal to its total fixed costs

will experience a loss but should continue to operate in the short-run

Solutions

Expert Solution

Answer option 4)

should shut down and suffer a loss equal to its total fixed costs

as price is above Minimum of AVC, so Firm should not shut down, bcoz Firm is able to cover all of its variable costs, but suffers loss on fixed cost

So Firm should continue Production in short run & should not shut down

& It will incur loss

Rahul Sunny answered 1 year ago

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