A competitive firm currently produces and sells 800 units of output at a price of $10...
A competitive firm currently produces and sells 800 units of output at a price of $10 per unit. The firm’s fixed cost is $4,000 and its variable cost is $8,300. In the short run, should the firm continue to operate? Explain your answer in detail.
Homework Answers
In the short run for the perfect competition the shutdown point is where the price equals the average variable cost ,(P=AVC) if the price is below the average variable cost the firm should immediately shutdown the production, this is because if the price is below AVC the firm is not even covering its variable cost. A firm cannot continue in the production if they are not covering the variable cost. In the give example the price of the product is $10 and the variable cost not directly given, the average variable cost (AVC) is calculated by divding the total cost by the quantity produced.
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Here the price of the product is slightly below the average variable cost so the firms should shutdown the production in the short run.
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A competitive firm currently produces and sells 800 units of
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Question 7-Firms in Competiive Markets: A competitive firm currently produces and sells 500 units of output....
Question 7-Firms in Competiive Markets: A competitive firm currently produces and sells 500 units of output. Its total revenue is $6,000; the marginal cost of producing the 500 unit of output is $14.50; and the average total cost of producing the 500th unit of output is s9.50. Is the firm maximizing its profit, or should it increase or decrease output in order to increase its profit?
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