Assume the following scenario: the price of the product is $20/unit. The margina

Question

Assume the following scenario:

the price of the product is $20/unit. The marginal cost is also $20. The average variable cost is $25, while the average total cost is $27. What would you recommend this perfectly competitive firm to do?

Question 39 options:

Shutdown its operations

Increase the level of output

Maintain the same level of output and cosider exiting in the long-run

Shutdown its operations

Increase the level of output

Maintain the same level of output and cosider exiting in the long-run

Explanation / Answer

Maintain the same level of output and cosider exiting in the long-run

because firm will bear a loss of $2 per unit, it has to leave in the long run if this loss continues.

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