Mrs Smith Is Operating a Firm in a Competitive Market

question 89

Multiple Choice

Mrs. Smith is operating a firm in a competitive market. The market price is $6.50. At her profit-maximizing level of output, her average total cost of production is $7.00, and her average variable cost of production is $6.00. Which of the following statements about Mrs. Smith's firm is correct?

• A)Mrs. Smith is earning a loss and should shut down in the short run.
• B)Mrs. Smith is earning a loss but should continue to operate in the short run.
• C)Mrs. Smith is earning a profit since the price is above the average variable cost.
• D)Without knowing Mrs. Smith's marginal cost, we cannot determine whether she should stay in business or shut down.

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Definitions:

Butterfly collection device

A specialized apparatus or tool designed for capturing and holding butterflies for scientific study or hobby.

Pressure

The force exerted by an object against a surface or the force exerted within fluids such as blood pressure in the arteries.

Needle

A slender, pointed instrument typically used for piercing or stitching materials or for medical injections and taking fluid samples.

Arm

A limb extending from the shoulder to the hand, comprising the upper arm, elbow, forearm, and wrist.