MC AVC 8 100 Units of ou Refer to the figure In the short ru

MC AVC 8 100 Units of ou, Refer to the figure. In the short run if economic conditions do not change, this firm should , and in the long run it should OA continue to produce where MC- MR; expand production OB. shut down; exit the industry OC.continue to produce where MC - MR;, shut down ? D. exit the industry, shut down

Solution

A. The firms will produce in the short run if the price is equal or above the average variable cost. If the price is below the average variable cost the firms would incur losses. So in this condition in the short run the firm will shut down and in the long run they exit the industry.

Ans: b. Shut down, exit in the industry.

B. The pareto optimality says that it is impossible to make some better off without making some one worse off.

Ans. A). no change is that will make some members of the society better off without making at least at least one other member of the society worse off.