The Owner of Tie-Dyed T-Shirts, a Perfectly Competitive Firm, Has

question 255

Multiple Choice

The owner of Tie-Dyed T-shirts, a perfectly competitive firm, has hired you to give him some economic advice. He has told you that the market price for his shirts is $20 and that he is currently producing 200 shirts at an AVC of $15 and an ATC of $25. What would you recommend to him?

• A) To continue producing in the short run, as his loss from production is less than his fixed costs, but to exit the industry in the long run if there are no changes in economic conditions.
• B) To shut down in the short run, as he is incurring a loss, and to leave the industry in the long run, if there are no changes in economic conditions.
• C) To continue to produce in the short run, even though he is earning a loss, and to expand in the future with the hope of increasing market share and total revenue.
• D) You tell him you cannot make any recommendations until you know what his fixed costs are.

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Definitions:

Economic Profit

The difference between total revenue and total costs, including both explicit and implicit costs, measuring the financial performance beyond the opportunity cost.

Commercial Real Estate

Property that is used solely for business purposes, which may be leased out to provide a workspace rather than a living space.

Peruvian Restaurant

An eating establishment that specializes in the cuisine of Peru, often featuring dishes like ceviche, lomo saltado, and aji de gallina.

Economic Profit

The distinction between overall income and total expenditures, encompassing both direct and indirect costs.