Question

A firm is operating in the short run. Here is some of the information about the firm's operation.

1. The short run fixed costs for the firm are $50.
2. The wage rate for each employee is $120 per day
3. The Production Function is below

Production Function
Labor	Daily Output
1	60
2	130
3	200
4	260
5	310
6	320
7	325
8	326

Variable Resources	Output	MP	TFC	TVC	TC	MC	ATC	AFC	AVC
0	0		50	0	50
1	60	60	50	120	170	2	2.83	.83	2
2	130	70	50	240	290	1.71	2.23	.38	1.85
3	200	70	50	360	410	1.71	2.05	.25	1.8
4	260	60	50	480	530	2	2.04	.19	1.85
5	310	50	50	600	650	2.4	2.10	.16	1.94
6	320	10	50	720	770	12	2.41	.16	2.25
7	325	5	50	840	890	24	2.73	.15	2.58
8	326	1	50	960	1010	120	3.1	.15	2.94

Using the chart , answer the question.

- If the price dropped to $1.65, should the firm produce? Why or why not?

Answer 1

Ans: No , if the price dropped to $1.65 , the firm should not produce.

Explanation:

It is cleared from the above table, at each level of output, the average variable cost is more than the market price. So it will not be profitable for the firm to continue production. The shutdown point will occur when the average variable cost is more than the market price .