Question

A firm sells 1000 units per week. it charges $15 per unit, the average variable costs are $10, and the average costs are $25. at what price does the firm consider shutting-down in the long run?

a. ​$25
b. ​$15
c. ​$0
d. ​$10

Answer 1

The price at which the firm considers shutting down in the long run is when it falls below its average variable costs of $10 per unit. Therefore, the correct answer is d. $10.

Step-by-step explanation:

The question asks about the long-run shutdown price of a firm, which refers to the price point at which a firm would consider stopping production permanently. A firm should consider shutting down in the long run if the price it can charge for its product falls below its average variable costs (AVC), as it would not be covering its variable costs of production and, therefore, would be unable to cover any portion of its fixed costs.

According to the information provided, the average variable costs are $10. Thus, the firm will consider shutting down in the long run if the price it can charge for the product is below $10. In the context of the given options, the correct answer is d. $10. This is because, at any price below $10, the firm would not even be able to cover the costs directly associated with producing the goods, let alone any fixed costs, and it would incur greater losses by continuing to operate compared to shutting down.