Question

For a perfectly competitive firm, marginal revenue equals marginal cost at 250 units of output. At 250 units, price is greater than average variable cost. It necessarily follows that the a. firm should continue to produce in the short run. b. firm should shut down its operation in the short run. c. marginal cost curve must have an upward-sloping portion and a downward-sloping portion. d. firm must be earning a profit.

Answer 1

A perfectly competitive firm should continue to produce in the short run if the price is greater than the average variable cost at the quantity where marginal revenue equals marginal cost.

Step-by-step explanation:

A perfectly competitive firm maximizes its profit by producing at the quantity of output where marginal revenue (MR) equals marginal cost (MC). If at that quantity, the price is greater than the average variable cost (AVC), the firm should continue to produce in the short run. This is because the firm is covering its variable costs and making a contribution towards its fixed costs. If the price is less than the AVC, then the firm should shut down its operation in the short run, as it will not even be covering its variable costs.

Answer 2

a. firm should continue to produce in the short run.

Step-by-step explanation:

If at equilibrium price is greater than average variable cost, than the firm should continue to produce in the short run. Till the point the firm is able to cover its operational/variable costs it should not shut down in the short run.