Question
In: Economics
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 2 years agoRelated Solutions
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Q (Output)
TVC (Total Variable Cost
0
0.00
1
2,500
2
4,000
3
5,000
4
6,200
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A profit-maximizing firm in a perfectly competitive market operates in the short run with total fixed...
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operates in the short run with total fixed costs of
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firm can only produce integer amounts of output (Q)
Q
TVC
0
0.00
1
8,000.00
2
15,000.00
3
20,000.00
4
23,000.00
5
25,000.00
6
29,000.00
7
33,500.00
8
39,000.00
9
46,000.00
10
53,500.00
11
61,200.00
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72,000.00
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