Question

Calculations 9 of 10 close At a firm's profit-maximizing level of output, its price is $200 and its short-run average total cost is $225. The firm has a profit of $25 per unit of output. should shut down if its short-run average fixed cost is less than $25. has a loss of $100 per unit of output. should shut down if its short-run average variable cost exceeds $25.

Answer 1

Should shut down if its short-run average variable cost exceeds $25.

Step-by-step explanation:

This directly explains the firms profit maximizing level of output in a short run. And in the scenario above, the firm made a $25 gain per unit output, it is advised the firm should shut down if its shut run average variable cost exceeds $25.

A process that companies undergo to determine the best output and price levels in order to maximize its return. The company will usually adjust influential factors such as production costs, sale prices, and output levels as a way of reaching its profit goal. There are two main profit maximization methods used, and they are Marginal Cost marginal Revenue Method and Total Cost total Revenue Method. Profit maximization is a good thing for a company, but can be a bad thing for consumers if the company starts to use cheaper products or decides to raise prices.