Question 17 0/0.5 pts Q FC 50 50 50 50 50 MC AVC ATC VC 0 70 120 150 220 TC 50 1

Question

Question 17 0/0.5 pts Q FC 50 50 50 50 50 MC AVC ATC VC 0 70 120 150 220 TC 50 120 170 200 270 350 440 120.00 85.00 66.67 67.50 70.00 73.30 70 70 60 50 40 80 90 60 50 390 65 Table 9.1 Refer to Table 9.1. If the market price is $40, which of the following would you recommend to this firm? Continue producing 4 units of output, because the firm is able to make an economic profit. Increase output to 5 units, so that marginal cost equals marginal revenue. Shut down production to insure loss minimization. Reduce price to $35, so that marginal cost will be less marginal revenue

Explanation / Answer

Right Answer is " Shut down production to insure loss minimization"

Problem is related to the short run. In short run, firm will continue to produce as long as it is able to recover AVC. But here price is less than AVC. Hence, firm is not even recovering AVC. Hence, it must shut down production to minimize its loss.

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