In: Economics
YoYo Ice Cream is a firm in a perfect competitive industry. YoYo Ice Cream sells a pint of ice cream for $20 per unit. When YoYo Ice Cream produces 200 units of output, the average variable cost is $16, the marginal cost is $18, the and average total cost is $23. Compare the YoYo's Ice Cream profit or loss at 200 units of output with its profit or loss if it were to shut down.
Total cost of producing 200 ice cream is 200 x 23 = 4600 and total revenue is 200 x 20 = 4000.
Profit = total revenue - total cost
4000 - 4600 = -600
the firm is facing a loss or negative profit is -600.
No, it will not shutdown as the price is above the average variable cost in the market.