Question

A firm sells 1,000 units per week. Suppose the average variable cost is $25, and the average cost is $60.

In the short run, the break-even price is ? . In the long run, the break-even price is ?

Suppose the firm charges a price of $42 per unit.

Use the following table to indicate whether the firm will shut down or continue to produce in the short run and the long run.

Time	Continue to Produce	Shut Down
Short Run
Long Run

Answer 1

At breakeven price, profit is 0 that is price is equal to average cost. It is same in the short and long run.

Breakeven price in short run=60

Break even price in long run= 60

In short run firm should shut down if price is less than average variable cost. Price is 42 which is above variable cost. So firm should continue to produce.

In long run firm should shut down if price is less than average cost. Price is less than average cost of 60. So firm should shut down in long run.

Short run- continue to produce

Long run- shut down.