Final answer:
If the market value of goods drops to $26,000 below cost and the resulting selling price is below the minimum average variable cost, the company should shut down in the short term to minimize losses.
Step-by-step explanation:
If the market value of goods in the inventory falls to $26,000 below its cost, the company must assess whether the current market price is below their minimum average variable cost (AVC). Based on the provided examples, when the price a firm receives for its product falls below the minimum AVC, the firm should shut down in the short term. This is because the firm would not be able to cover its variable costs and would therefore minimize losses by not operating.
For instance, as indicated in the examples where if the price of raspberries falls to $1.50 per pack, which is below the AVC, it is more cost-effective for a farm to shut down than to continue producing at a loss. A similar principle applies across various types of businesses that face similar situations. The company in question should therefore carefully compare the market value of its inventory against the average variable costs and decide accordingly.