Crabby Bob\'s is a seafood restaurant in a beach resort in Delaware. Crabby Bob\
ID: 1223672 • Letter: C
Question
Crabby Bob's is a seafood restaurant in a beach resort in Delaware. Crabby Bob's earns a profit each month from May through September, suffers losses in October, November, and April but remains open, and remains closed from December through March. Given that the restaurant market in this town is perfectly competitive, which of the following must be true? (Check all that apply.)
A. From May through September, Crabby Bob's average revenue is above average total cost.
B. In April, October, and November, Crabby Bob's average revenue is below ATC but is greater than AVC.
C. From December through March, Crabby Bob's average revenue is below ATC but is greater than AVC.
D. From December through March, Crabby Bob's average revenue is below average variable cost.
E. In April, October, and November, Crabby Bob's average revenue is above average total cost.
Explanation / Answer
Profits from May to September, Losses in October, November and April but remains open and remain closed from December to March.
Option A applies, Option B also applies and Option D also applies.
From May through September, Profits are earned so, Price/ Average Reevenue is greater than ATC. In October, November abd April, it remains open but losses are incurred which means that Price is greater than AVC as it remains open. When It shuts down in December to March, then Prices will fall below AVC.
The shut down point of the firm occurs when the prices fall below AVC so that the firm is not able to cover its variable cost and also the fixed cost. So, it minimizes loss by shutting down.