A firm sets its price at $10.00 per unit. It has an average variable cost of $8.

Question

A firm sets its price at $10.00 per unit. It has an average variable cost of $8.00 and an average fixed cost of $4.00 per unit. In the short run, this firm is

unable to cover all of its fixed cost and hence should shut down.

incurring a loss of $2.00 per unit and should shut down.

incurring a profit.

incurring a loss per unit of $2.00, but since it can still cover its variable costs, should continue to operate

unable to cover all of its fixed cost and hence should shut down.

incurring a loss of $2.00 per unit and should shut down.

incurring a profit.

incurring a loss per unit of $2.00, but since it can still cover its variable costs, should continue to operate

Explanation / Answer

incurring a loss per unit of $2.00, but since it can still cover its variable costs, should continue to operate

yes as if you stop producing , you will incur loss of $4.00 per unit as you will need to pay the fixed costs in any case. So if now you continue to opearte your loss will be $2.00 per unit which is better than the case of shut down. so as per rule of shut down case, its better to produce in short run until you can at least earn variable costs.

incurring a loss per unit of $2.00, but since it can still cover its variable costs, should continue to operate

yes as if you stop producing , you will incur loss of $4.00 per unit as you will need to pay the fixed costs in any case. So if now you continue to opearte your loss will be $2.00 per unit which is better than the case of shut down. so as per rule of shut down case, its better to produce in short run until you can at least earn variable costs.

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