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A perfectly competitive firm can produce its current level of output at an average total cost of $10 ...

MrsSmitty

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A perfectly competitive firm can produce its current level of output at an average total cost of $10 ...

A perfectly competitive firm can produce its current level of output at an average total cost of $10 and a marginal cost of $8. If the market price of the product is currently $8, what should the firm do?

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The firm should definitely shut down since average total cost exceeds price.

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The answer depends upon the relationship between price and average variable cost. The firm should shut down if average variable cost is $8 or greater, but the firm should continue to produce the current level of output if average variable cost is less than $8.

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The firm should increase production in order to increase profit.

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The firm should continue to produce, but they should decrease production in order to increase profit.

Textbook

Economics

Edition: 12^th

Author: Arnold

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HCho0

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More solutions for this book are available here

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MrsSmitty Author

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Good timing, thanks!

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