A firm sells 1000 units per week Suppose the average variabl

A firm sells 1,000 units per week. Suppose the average variable cost is $25, and the average cost is $65. In the short run, the break-even price is ___ . In the long run, the break-even price is ___

Suppose the firm charges a price of $10 per unit.

Use the following table to indicate whether the firm will shut down or continue to produce in the short run and the long run.

Time

Continue to Produce or

Shut Down

Short Run

Long Run

Solution

(a) In short run, Break-even price = Average variable cost = $25

(b) In long run, Break-even price = Average cost = $65

(c) When Price = $10, it is lower than both average variable cost and average cost, therefore making loss. Therefore,