Assume a Perfectly Competitive Firm Is Currently Producing 5,000 Units

question 31

Essay

Assume a perfectly competitive firm is currently producing 5,000 units of output and is earning $15,000 in total revenue.The marginal cost of the 5,000th unit of output is $3.The corresponding average total cost is $3.50 and total fixed costs equal $1250.Based on this information,should this firm continue to operate in the short run? Why or why not?

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Definitions:

Flotation Costs

The expenses incurred by a company in issuing new securities, including underwriting, legal, registration, and printing fees.

WACC Adjustment

The process of modifying the Weighted Average Cost of Capital to reflect changes in the market or the firm's risk profile.

Financing Scenarios

Different strategies and options available for a business or individual to raise capital or fund operations.

Cost of Capital

The return a company is required to make on its investments to sustain its market value and appeal to investors.