Asked by Julian Jones on Jul 13, 2024
Verified
A competitive firm currently produces and sells 7,500 units of output at a price of $2.50 per unit. The firm's average fixed cost is $0.75 and its average total cost is $2.80. In the short run, should the firm continue to operate?
Average Total Cost
The per unit cost of production, calculated by dividing total cost by the quantity of output produced.
Fixed Cost
Costs that do not change with the level of production or output, such as rent or salaries.
Average Fixed Cost
The fixed costs of production (costs that do not change with the level of output) divided by the quantity of output produced.
- Analyze the decision-making process of competitive firms regarding production and sales in the short run.
- Understand the concept and implications of average and marginal costs in the context of firm operations.
Verified Answer
BR
Brittany ReneeJul 19, 2024
Final Answer :
Yes, the firm should continue to operate since the price of $2.50 exceeds the average variable cost, which is $2.05.
Learning Objectives
- Analyze the decision-making process of competitive firms regarding production and sales in the short run.
- Understand the concept and implications of average and marginal costs in the context of firm operations.