Suppose the firm is a price taker and sells its product at a price of $12 to all

Question

Suppose the firm is a price taker and sells its product at a price of $12 to all customers. At a level of output equal to 30 units, MR = MC, total costs equal $1000, and total variable costs equal $320. Then:

A. the firm should shut down because average variable costs exceed average revenue.
B. since fixed costs are covered, the firm should produce and sell 30 units.
C. the firm should expand production until average revenue exceeds average variable costs.
D. the firm should produce 30 units in the short run because average revenue exceeds average variable cost for 30 units.

Explanation / Answer

D. The firm needs to cover average variable costs in order to produce and if p=12 and total variable costs= 320 then average variable costs when q=30 are 10.66667 which is less than p

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