Consider the choices facing an unprofitable (and perfectly competitive) firm. The firm currently produces 100 units per day and sells them at a price of $22 each. At the current output quantity, the firm's total cost is $3,000 per day, its variable cost is $2,500 per day, and its marginal cost is $45. Evaluate the following statement from the firm's accountant: "Given our current production level, our variable cost ($2,500) exceeds our total revenue ($2,200). We should shut down our production facility."

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3 Feb 2023

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3. You've been hired by an unprofitable firm to determine whether it should shut down its operation. The firm currently uses 70 workers to produce 300 units of output per day. The daily wage (per worker) is $100, and the price of the firm's output is $30. The cost of other variable inputs is $500 per day. Although you don't know the firm's fixed cost, you know that it is high enough that the firm's total costs exceed its total revenue. You know that the marginal cost of the last unit is $30. Should the firm continue to operate at a loss? Explain your answer.

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You've been hired by an unprofitable firm to determine whether it should shut down its operation. The firm currently uses 70 workers to produce 300 units of output per day. The daily wage (per worker) is $100, and the price of the firm's output is $30. The cost of other variable inputs is $500 per day. Although you don't know the firm's fixed cost, you know that it is high enough that the firm's total costs exceed its total revenue. You know that the marginal cost of the last unit is $30. Should the firm continue to operate at a loss? Carefully explain your answer.

carminesnail415

1. A competitive firm operating in the short run is producing at the output level at which ATC is at a minimum. If ATC = $8 and MR = $9, in order to maximize profits (or minimize losses), this firm should:

a) reduce output.

b) increase output.

c) shut down.

d) do nothing; the firm is already maximizing profits.

2. Zoe's Bakery operates in a perfectly competitive industry. The variable costs at Zoe's Bakery increase, so all of the cost curves (with the exception of fixed cost) shift leftward. The demand for Zoe's pastries does not change, nor does the firm shut down. To maximize profits after the variable cost increases, Zoe's Bakery will ________ its price and ________ its level of production.

a) raise; increase

b) decrease; increase

c) raise; decrease

d) do nothing to; decrease

3. The equilibrium price of a guidebook is $35 in the perfectly competitive guidebook industry. Our firm produces 10,000 guidebooks for an average total cost of $38, the marginal cost is $30, and the average variable cost is $30. Our firm should:

a) raise the price of guidebooks, because the firm is losing money.

b) keep output the same, because the firm is producing at minimum average variable cost.

c) shut down because the firm is losing money.

d) produce more guidebooks, because the next guidebook produced increases profit by $5.