Asked by Shyla Schneider on Jul 06, 2024
Verified
Bob runs a pedicure business in a perfectly competitive industry.He knows that he will break even if the price of pedicures is $15 but that he will have to shut down if the price is $11 or lower.If the market demand in the industry is P = 30 - (0.2) Q and the market supply is P = (0.2) Q,in the short run,Bob will:
A) shut down since he cannot cover any of his variable costs.
B) produce but make zero economic profit.
C) produce with a loss since he is operating below his break-even level.
D) shut down,although he is making a positive economic profit.
Break Even
The point at which total costs and total revenue are equal, resulting in no net loss or gain for a business.
Variable Costs
Costs that vary directly with the level of production or output, such as materials and labor costs.
Economic Profit
Economic profit is the difference between total revenue and total costs, including both explicit and implicit costs, measuring the profit that exceeds the next best alternative use of resources.
- Determine the break-even and shutdown points for a firm in perfect competition.
Verified Answer
Learning Objectives
- Determine the break-even and shutdown points for a firm in perfect competition.
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