Question

Variable Resources	Output	MP	TFC	TVC	TC	MC	ATC	AFC	AVC	TR	MR	Profit
0	0		50	0	50					0		-50
1	60	60	50	120	170	2	2.83	0.83	2	141	2.35	-29
2	130	70	50	240	290	1.71	2.23	0.38	1.85	305.5	2.35	15.5
3	200	70	50	360	410	1.71	2.05	0.25	1.80	470	2.35	60
4	260	60	50	480	530	2.00	2.04	0.19	1.85	611	2.35	81
5	310	50	50	600	650	2.40	2.10	0.16	1.94	728.5	2.35	78.5
6	320	10	50	720	770	12	2.41	0.16	2.25	752	2.35	-18
7	325	5	50	840	890	24	2.74	0.15	2.58	763.75	2.35	-126.25
8	326	1	50	960	1010	120	3.10	0.15	2.94	766.1	2.35	-243.9

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

Answer 1

The firm should not produce when the price drops to $1.65.

The short-run shutdown condition is that a firm should stop production if the price is below the lowest average variable cost. Here, the lowest average variable cost is $1.80.