Question

Converse, a college apparel company, has been fairly successful in its market. Lydia sees an opportunity for profit and enters the market. After producing her profit-maximizing level of output, she finds that her average total cost per unit is $40, her average variable cost per unit is $30, and the market price is $35. In the short run, Lydia should

A.shut down her denim-colored college sportswear businessand go back to college
B.stay in business even though she is suffering a loss
C.expand production since she is making a positive economic profit
D.More information is needed to answer this question.

Answer 1

B.

Step-by-step explanation:

Based on the scenario being described within the question it can be said that in this situation Lydia should stay in business even though she is suffering a loss. This is because Lydia has just entered the market and is in the growth stage, she not needs to stay in the market long enough for prices to start becoming profitable through more demand which will allow her to increase her prices.