Consider the Following Data: Equilibrium Price = $12

question 45

Multiple Choice

Consider the following data: equilibrium price = $12.50, quantity of output produced = 1,000 units, average total cost = $15, and average variable cost = $13. What will the firm do and why?

• A)Shut down in the short run, because price is below average variable cost.
• B)Shut down in the short run, because it will be taking a loss of $2,500 if it continues to produce which is less than the loss it will earn if it shuts down.
• C)Continue to produce in the short run, because price is greater than average variable cost.
• D)Continue to produce in the short run, because firms are always stuck with having to produce in the short run.
• E)none of the above

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