A Perfectly Competitive Firm Produces 3,000 Units of a Good

question 106

Multiple Choice

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000.The fixed cost of production is $20,000.The price of each good is $10.Should the firm continue to produce in the short run?

• A)No, it should shut down because it is making a loss.
• B)Yes, it should continue to produce because its price exceeds its average fixed cost.
• C)Yes, it should continue to produce because it is minimizing its loss.
• D)There is insufficient information to answer the question.

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Definitions:

Variable Cost Per Unit

The cost that varies with the level of output or activity and is typically assessed on a per-unit basis.

Fixed Cost Per Unit

This is the calculated cost assigned to each unit of production, derived by dividing the total fixed costs by the number of units produced.

Estimated Cost

A projection or approximation of the cost to produce a product or complete a project.

Cost Graphs

A visual representation used in economics and accounting to display the relationship between costs and various levels of activity.