Cow Chip Cookies, a giant cookie company, has been fairly successful in its mark
ID: 1112479 • Letter: C
Question
Cow Chip Cookies, a giant cookie company, has been fairly successful in its market. Lydia sees an opportunity for profit and enters the market. After producing her profit-maximizing level of output, she finds that her average total cost per unit is $3, her average variable cost per unit is $2, and the market price is $2.50. In the short run, Lydia should Choose one: A. shut down her business. B. expand production because she is making a positive economic profit. C. stay in business even though she is suffering a loss.
Explanation / Answer
Price=2.5>AVC then firm will produce but P<AC which means firm is incurring loss in short run.
Ans is C. Thus firm will produce and stays in bisiness even thaugh she is suffering a loss.