A profit-maximizing firm is producing where MR = MC and has an average total cos

Question

A profit-maximizing firm is producing where MR = MC and has an average total cost of $4, but it gets a price of $3 for each good it sells. What would you advise the firm to do? The firm should shut down in the short run. Once the firm recoups its fixed costs, it should produce in the long run. The firm should shut down in the short run and exit the market in the long run. The firm is producing where MR = MC, so it should produce in both the short run and long run. As long as average variable costs ate loss than $3, in the short run, the firm should produce. In the long run, it should exit the market. What would you advise the firm to do if you knew average variable costs wore $3 50? The firm should exit the market in the long run, but it should produce in the short run since it is covering average fixed costs. The firm should shut down in the short run and exit the market in the long run. The firm is producing where MR = MC, so it should produce in both the short run and king run. The firm should shut down in the short run. Once the firm recoups its fixed costs, it should reopen in the long run.

Explanation / Answer

19

a. 4. As long as average variable cost is less than 3, it should produce in the short run , exit in long run.

b. 2. The firm should shut down in the short run and exit the industry in the long run.

As , Operating Profit = (P- avc)Q

So, Since If P < AVC , then firm earn negitive operating profit. Hence it should shut down

If you don't understand anything, then comment, I will revert back on the same.

And If you liked the answer then please do review the same. Thanks :)

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.