Question
Utilize the following information, concerning the perfectly competitive soy bean agricultural market, to answer the following question concerning a profit maximizing firm:
Fixed Cost: $84.50
ATC: $20.50
PRICE: $17.50
MR: $17.50
AVC: $12.50
Quantity: 8 units
Question:
Should this firm shutdown?
Fixed Cost: $84.50
ATC: $20.50
PRICE: $17.50
MR: $17.50
AVC: $12.50
Quantity: 8 units
Question:
Should this firm shutdown?
A No, due to the fact that the operating loss is -$24, which is much smaller than the loss incurred if they were to shutdown. If they were to shutdown, the loss would equal the fixed costs or -$84.50. However, the firm should shutdown once the price goes above average variable costs.
B No, due to the fact that the operating loss is -$24, which is much smaller than the loss incurred if they were to shutdown. If they were to shutdown, the loss would equal the fixed costs or -$84.50.
C No, due to the fact that the operating loss is -$48, which is much smaller than the loss incurred if they were to shutdown. If they were to shutdown, the loss would equal the fixed costs or -$169.
D Yes, due to the fact that the shutdown loss is -$169. This is much smaller than the operating loss.
This question is taken from Econ 101 – Microeconomics » Summer 2021 » iVAT Chapter 13
