Trout farming is a perfectly competitive industry and all trout farms have the s

Question

Trout farming is a perfectly competitive industry and all trout farms have the same cost curves. When the market price is $40 a fish, farms maximize profit by producing 800 fish a week At this output average total cost is $38 and average variable cost is $12 a fish Minimum average variable cost is $7 a fish If the price of a fish falls to $7, the trout farmer will shut down produce the profit-maximizing output continue to produce 800 fish a week attempt to raise the price back to $40 a fish either shut down or produce the profit-maximizing output

Explanation / Answer

If the price of a fish falls to $7,the trout farmer will

A.shut down.

Explanation-As we know if market price goes below the AVC value then it will be better for firm to choose to close up option.So at what level market price =AVC is known as shut down point.

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