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

question 73

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. You tell him he should continue to operate in the short run because

• A) he is earning positive economic profits of $4,000.
• B) his loss from operating is only $2,000, which is less than his loss if he shuts down.
• C) he has to pay his fixed costs of $2,000 if he shuts down, which is greater than his loss when he operates.
• D) In fact you do not tell him to operate-he should shut down since he has a loss.

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Definitions:

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