Asked by Payton Chavez on Sep 23, 2024
Verified
A firm sells 300,000 units per week.It charges $ 35 per unit,the average variable costs are $40,and the average costs are $55.In the short run,the firm should
A) Shut-down as the firm is making a loss of $15 million per week
B) Shut-down as the firm cannot cover the variable costs
C) Shut down because the price is lower than average cost
D) None of the above
Short Run
A period in which at least one of a firm's inputs is fixed and cannot be varied.
Variable Costs
Expenses that directly fluctuate in accordance with the amount of production or output.
Average Cost
The total cost of production divided by the number of units produced, indicating the cost per unit.
- Fathom the conditions that necessitate a business to halt operations in the short and long run.
- Determine and clarify the significance of average variable costs, average costs, and price within the shutdown decision process.
Verified Answer
IJ
Israt Jahan1 day ago
Final Answer :
B
Explanation :
In the short run, the firm should only produce if it can cover its variable costs. As the average variable cost is $40 and the price per unit is $35, the firm is making a loss on each unit produced. Therefore, it is better for the firm to shut down than to continue production, as continuing would make the losses even greater.
Learning Objectives
- Fathom the conditions that necessitate a business to halt operations in the short and long run.
- Determine and clarify the significance of average variable costs, average costs, and price within the shutdown decision process.