Table 144 A firm in a competitive market has the following c

Table 14-4 A firm in a competitive market has the following cost structure:

Refer to Table 14-4. When will this firm shut down and exit?

Output	Total Cost
0	$5
1	$10
2	$12
3	$15
4	$24
5	$40

Solution

Answer is C. it will shut dwn if price falls below $5 anad exit if the price falls below $3.33 Explanation: Quantity TC FC VC AVC 0 5 5 0 - 1 10 5 5 5.00 2 12 5 7 3.50 3 15 5 10 3.33 4 24 5 19 4.75 5 40 5 35 7.00 Here MC start rising from $3.33, therefore to be at equilbrium MR shall be $3.33 Hence, price shall be atleast $3.33 to recover the Variable cost otherwise shut down. However, at this point Average total cost is $5 and therefore, price must preferable fix at $5.00