Asked by Blaine Braden, II on Sep 23, 2024
A firm sells 1000 units per week.It charges $15 per unit,the average variable costs are $10,and the average costs are $25.In the short run,the firm should
A) Shut-down as the firm is making a loss of $10,000 per week
B) Shut-down as price is lower than average cost
C) Continue operating as the firm is covering all the variable costs and some of the fixed costs
D) Shut-down because it is cost effective to pay off the remaining fixed costs
Short Run
A period during which at least one factor of production is fixed, limiting the ability of a firm to adjust to changes in demand or production levels.
Average Costs
The total cost of production divided by the number of units produced, representing the cost per unit of production.
Shut-Down
The process of ceasing operations or closing a business temporarily or permanently.
- Comprehend the circumstances that justify a firm's decision to cease operations in both the short term and the long term.
- Recognize and elucidate the importance of average variable costs, total average costs, and price in the decision to shut down operations.
Learning Objectives
- Comprehend the circumstances that justify a firm's decision to cease operations in both the short term and the long term.
- Recognize and elucidate the importance of average variable costs, total average costs, and price in the decision to shut down operations.