Question

If a profit maximizing firm has a fixed cost of $3000 and an average variable cost of $40 per unit but a maximum output of 50 units. The firm cannot avoid the fixed costs in the short run but can avoid the fixed costs by shutting down in the long run. The firm should

A) produce output at prices no less than $40 and supply 50 outputs at prices above $40

B) produce output at prices no less than $100 and supply 50 outputs at prices above $100

C) none of these

Answer 1

The firm should produce output at prices no less than AVC i.e $40 and supply 50 units at prices above AVC i.e $40. Hence, option(A) is correct.