QUESTION 8 Greg is a producer of banana smoothies in a perfectly competitive mar

Question

QUESTION 8 Greg is a producer of banana smoothies in a perfectly competitive market. At his profit-maximising output level, his average variable cost is $3.80 per smoothie and his average total cost is $4.10 per smoothie. The minimum average variable cost he can achieve is $3.20 per smoothie. Select the item from the list provided to make the following statements true 1. $3.20 2. $0.30 per smoothie 3. $0.60 4. $4.10 per smoothie 5. $0.90 6. S3.80 7. $3.20 per smoothie 8. $0.30 9. $4.10 10. $0.90 per smoothie 11. $0.60 per smoothie 12. $3.80 per smoothie YIf the market price is below_Greg should shut down. Greg is making an economic profit if the price is above Greg's average fixed cost at his profit maximising output level is

Explanation / Answer

If the market price is below $ 3.20 per smoothie, Greg should shut down.

Greg is making an economic profit if the price is above $ 4.10 per smoothie.

Greg's average fixed cost at his profit maximizing output level is $ 0.30 per smoothie.

Firm must shut down in the short run when it's price is below the minimum Average Variable Cost.

Firm earns economic profit when it's price is above it's Average Total Cost.

At profit maximizing output level ATC = $4.10 per smoothie and AVC = $ 3.80 per smoothie.

ATC = AFC + AVC

AFC = ATC - AVC

AFC = $ 4.10 - $ 3.80

AFC = $ 0.30 per smoothie.

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