Question

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 200 units is $4.00. The minimum possible average variable cost is $3.50. The market price of the product is $3.00. To maximize profits or minimize losses, the firm should: Group of answer choices

Answer 1

It must shut down

Step-by-step explanation:

Even at the lower average variable cost, which is 3.50 dolllar will be lossing money given a market price of 3.00 dollar

Considering is not making enough to cover the variable cost the best option is to shut down and only take a hit for the fixed cost until it can totally exit the market. If it tries to produce it will only make thinks worse as producing generates more losses