Question

The state of Maine has a very active lobster industry, which harvests lobsters during the summer months. During the rest of the year, lobsters can be obtained from other parts of the world but at a much higher (input) price. Maine is also full of "Lobster Shacks," roadside restaurants serving lobster dishes that are open only during summer. Why is it optimal for lobster shacks to operate only during summer? Because outside the summer, ______ are above lobster dish prices, so that they should shut down.

A) marginal costs

B) average fixed costs

C) average variable costs

D) average total costs

Answer 1

"C"

The average variable cost of the lobster dish is much higher than the price of the dish, so the firms selling the lobster dish will be facing a loss, that will force them to shut down in the long run.