Asked by Mitchell Kramer on Jun 10, 2024
Verified
A firm sells 300,000 units per week.It charges $ 35 per unit,the average variable costs are $40,and the average costs are $55.At what price does the firm consider shutting-down in the short run?
A) $45
B) $40
C) $95
D) $55
Short Run
A period in economics where at least one input is fixed and cannot be changed.
Average Variable Costs
The total variable costs divided by the quantity of output produced. It represents the variable cost per unit of output.
Shutting-Down
The process a business undergoes when it ceases operations, often due to financial struggles or strategic decisions.
- Grasp the scenarios in which a business ought to contemplate ceasing its activities temporarily and permanently.
- Detect and interpret the role of average variable costs, average costs, and pricing in the shutdown decision-making procedure.
Verified Answer
AD
Adora DiuguJun 15, 2024
Final Answer :
B
Explanation :
In the short run, a firm considers shutting down if the price falls below the average variable cost. In this case, the average variable cost is $40. Therefore, if the price falls below $40, the firm will shut down. The only option that falls below $40 is B, which is $40. Hence, the firm will consider shutting down if the price falls below $40.
Learning Objectives
- Grasp the scenarios in which a business ought to contemplate ceasing its activities temporarily and permanently.
- Detect and interpret the role of average variable costs, average costs, and pricing in the shutdown decision-making procedure.