Question

Lentz’s Incorporated sells paper in a perfectly competitive market at a price of $2 per ream. At the profit-maximizing (cost-minimizing) level of output, average total cost is $2.50 per ream and average variable cost is $1.95 per ream. Should the firm continue to operate in the short run?

Answer 1

Profit - $0.05, Yes

Step-by-step explanation:

As we know

The profit = Market price - average variable cost

= $2 - $1.95

= $0.05

Since the amount comes in positive which reflect the profit that shows that the firm will continue to operate in the short run.

The profit is computed by deducting the average variable cost from the market price

We do not consider the average total cost in the computation part.