Mrs. Smith is operating a firm in a competitive market. The market price is $6.5

Question

Mrs. Smith is operating a firm in a competitive market. The market price is $6.50. At her profit maximizing level ofoutput, her average total cost of production is $7.00 and heraverage variable cost of production is $6.00. a. Mrs Smith is earning a loss anshould shut downin the shortrun b. Mrs Smith is earning a loss but should continue to operatein the short run. c.Mrs Smith is earning a profit, since the price is above theaverage variable cost. d.Whithout knowing Mrs smith's marginal costk, we cannotdetermine whether she should stay in business or shut down. Mrs. Smith is operating a firm in a competitive market. The market price is $6.50. At her profit maximizing level ofoutput, her average total cost of production is $7.00 and heraverage variable cost of production is $6.00. a. Mrs Smith is earning a loss anshould shut downin the shortrun b. Mrs Smith is earning a loss but should continue to operatein the short run. c.Mrs Smith is earning a profit, since the price is above theaverage variable cost. d.Whithout knowing Mrs smith's marginal costk, we cannotdetermine whether she should stay in business or shut down.

Explanation / Answer

B. Earn a loss but should continue to operate in the short run. I KNOW this is right.

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