Homework Answers
Answer
Option 4
Shutdown
A perfectly competitive firm produces at MC=P if P>AVC
AVC=VC/Q
=4000/55
=72.7272727
the AVC>P so the firm should shut down to reduce losses
Lose if produce =(AVC-P)*Q+FC
=(72.7272727-40)*55+200
=2000
and loss if a shutdown is equal to fixed cost
=$200
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