Question

Utilize the following information, concerning the perfectly competitive soy bean agricultural market, to answer the following question concerning a profit maximizing firm:

Fixed Cost: $84.50

ATC: $20.50

PRICE: $17.50

MR: $17.50

AVC: $12.50

Quantity: 8 units

Question:

Should this firm shutdown?

Group of answer choices

Yes, due to the fact that the shutdown loss is -$169. This is much smaller than the operating loss.

No, due to the fact that the operating loss is -$24, which is much smaller than the loss incurred if they were to shutdown. If they were to shutdown, the loss would equal the fixed costs or -$84.50.

No, due to the fact that the operating loss is -$48, which is much smaller than the loss incurred if they were to shutdown. If they were to shutdown, the loss would equal the fixed costs or -$169.

No, due to the fact that the operating loss is -$24, which is much smaller than the loss incurred if they were to shutdown. If they were to shutdown, the loss would equal the fixed costs or -$84.50. However, the firm should shutdown once the price goes above average variable costs.

Answer 1

No, due to the fact that the operating loss is -$24, which is much smaller than the loss incurred if they were to shutdown. If they were to shutdown, the loss would equal the fixed costs or -$84.50.

Explanation :

Here price is above average variable cost so firm should not shutdown. When price is less than average variable cost firm should shutdown.

Here firm is making losses.

Profit =(Price - ATC) *quantity

=(17.50-20.50)*8

=-3*8

=-24.

When firm shutdowns losses will equal to fixed cost.