Question

A competitive firm maximizes profit at an output level of 500 units, market price is $24.00, and ATC is $25.25. At what range of AVC values for an output level of 500 would the firm choose not to shut down in the short run?

Answer 1

$24>AVC

Step-by-step explanation:

Data provided

Quantity = 500 units

Market price = $24

ATC = $25.25

As per the situation, a firm a would shut down if,

P<AVC

Therefore, the condition for not shutting down is,P>AVC

From the above equation we will get

= $24>AVC

Therefore the correct answer is $24>AVC

If AVC is less than $24 the company will decide not to shut down and at the current price it will cover its rising costs.