If the market price is $60, a firm\'s minimum average total cost is $70, and min

Question

If the market price is $60, a firm's minimum average total cost is $70, and minimum average variable cost is $50, what should the firm do in this perfectly competitive market? The firm should continue producing in the short run in order to minimize losses The firm should continue producing because the firm is earning an economic profit The firm should continue producing because the firm is earning a normal profit The firm should shut down operations in order to minimize losses If the market price is $60, a firm's minimum average total cost is $70, and minimum average variable cost is $50, what should the firm do in this perfectly competitive market? The firm should continue producing in the short run in order to minimize losses The firm should continue producing because the firm is earning an economic profit The firm should continue producing because the firm is earning a normal profit The firm should shut down operations in order to minimize losses

Explanation / Answer

Answer

The firm should continue producing in the short run in order to minimize losses

The firm is making losses in short run

the per unit loss> ATC-price=60-70=-10

so the firm is making losses but the firm is minimizing losses because if the firm does no produce then the loss is equal to fixed cost and that is higher than the (ATC-price)*Q

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