Question

There are two firms, Joe's bakery and Jenny's tire shop. Joe sees his P* greater than AVC but less than ATC, Jenny sees her P* greater than AVC and greater than ATC. What will they do? radio_button_unchecked Jenny will shut down in the short run, stay in the long run, Joe will stay in the long and short run. radio_button_unchecked Jenny will stay in the short and long run and Joe will stay in the short run and exit in the long run. radio_button_unchecked Joe will exit in the long run but stay in the short run and Jenny will shut down in the short run and exit in the long run. radio_button_unchecked Joe will stay in the long and short run and Jenny will stay in the long and short run. SUBMIT

Answer 1

Jenny will stay in the short and long run and Joe will stay in the short run and exit in the long run.

Step-by-step explanation:

Joe's price is > average variable cost but < than average total cost. This means that he can continue to operate in the short run as long a the AVC is lower than the price, but on the long run he will close. He will not be able to make a profit in the long run, but his business can "survive" in the short run.

Jenny's price is > average variable cost and > than average total cost. She can continue to operate in the short and long run.