Consider a firm that has short-run AVC of $1.50 and short-run AFC of $1. If the firm can charge a...
Question:
Consider a firm that has short-run AVC of $1.50 and short-run AFC of $1. If the firm can charge a price of $1.25 per unit sold then the firm should:
a. shut down
b. exit
c. produce in the SR but not the LR
d. produce in both the SR and the LR
Shutdown Price:
Shutdown price is the price where the marginal cost of production curve cuts the average variable cost curve at its minimum. At this price, the firm earns zero profits and benefits and below this price, the firm makes huge losses, and it ends up shutting down its operations.
Answer and Explanation: 1
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View this answerShut down is the price should be equal to the short-run average variable cost curve. The firm should continue its operations if the price exceeds its...
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Pricing Cost: What Motivates Mark-up and Break-Even Pricing
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Chapter 11 / Lesson 7
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Learn about pricing cost and what motivates mark-up and break-even pricing. Explore pricing, which is one of the marketing mix 4Ps, basic pricing terminology, and pricing options, including their purpose, advantages, and disadvantages.
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