Asked by Billy Yeung on Jul 14, 2024
Verified
A firm sells 1000 units per week.It charges $15 per unit,the average variable costs are $10,and the average costs are $25.At what price does the firm consider shutting-down in the short run?
A) $25
B) $0
C) $15
D) $10
Short Run
A period in which at least one factor of production is fixed, limiting the ability of a business to adjust fully to changes in market conditions.
Average Variable Costs
Costs that vary with the level of output, calculated by dividing the total variable costs by the quantity of output produced.
Shutting-Down
A short-run decision by a firm to halt production because operating would lead to a loss greater than the fixed costs.
- Learn the critical circumstances that drive a firm towards the suspension of its activities in both the short and long timeframe.
- Identify and delineate the relevance of average variable costs, aggregate average costs, and pricing in the shutdown decision matrix.
Verified Answer
KW
Kelsey WatsonJul 15, 2024
Final Answer :
D
Explanation :
In the short run, a firm considers shutting down if the price falls below its average variable costs. Here, the average variable costs are $10, so the firm would consider shutting down if the price drops to $10 or below.
Learning Objectives
- Learn the critical circumstances that drive a firm towards the suspension of its activities in both the short and long timeframe.
- Identify and delineate the relevance of average variable costs, aggregate average costs, and pricing in the shutdown decision matrix.