Final answer:
Bommel's Famous Farm should continue operating as they can cover their average variable costs and some fixed costs, which is better than shutting down and incurring only fixed costs with no revenue.
Step-by-step explanation:
The question relates to a perfectly competitive market, specifically to Bommel Famous Farm, which is operating as a broccoli producer. The farm is in a scenario where the short-run price for broccoli is below the average total cost but above the shutdown point. This means they are currently making a loss, but not significant enough to cease operations.An explanation of this situation can be based on Figure 8.6, which is about a raspberry farm, but the principles are the same. In case (a), where the price is above average variable cost, the farm continues to operate despite losses because it still covers its variable costs and contributes to fixed costs. If the farm were to shut down, it would still incur fixed costs without generating any revenue to cover them. In case (b), the price is below the average variable cost, and total losses are greater than the fixed costs alone, making shutting down the preferable option.In Conclusion, Bammel Famous Farm should continue operating since they are able to cover their average variable costs and some of their fixed costs, which minimizes their losses compared to shutting down entirely.