Question4 0 out of 1 points Consider the following data equi

Question4 0 out of 1 points Consider the following data: equilibrium price $8.50, quantity of output produced- 100 units, average total cost-$10, and average variable cost $9. What will the firm do and why? c. Continue to produce in the short run, because price is greater than average variable cost a Shut down in the short run, because price is below average variable cost. b. Shut down in the short run, because it will be taking a loss of $100. c. Continue to produce in the short run, because price is greater than average variable cost d. Continue to produce in the short run, because firms are always stuck with having to produce in the short run. e, none of the above Selected Answer: Answers

Solution

Correct option is (b).

A firm will shut down in short run if total revenue is less than total variable cost, or if price is less than average variable cost (AVC). Since price is less than AVC ($8.5 < $9), the firm will shut down.