Question

A firm sells 1000 units per week. It charges $15 per unit, the average variable costs are $10, and the average costs are $25. In the long run, the firm should a. ​Shut-down because it is cost effective to pay off the remaining fixed costs b. ​Continue operating as the firm is covering all the variable costs and some of the fixed costs c. ​Shut-down as the firm is making a loss of $10,000 per week d. ​Shut-down as price is lower than average cost

Answer 1

Answer:

b. ​Continue operating as the firm is covering all the variable costs and some of the fixed costs

Explanation:

A firm should shutdown operations if its price is less than average variable cost.

The price the firm sells is $15

Average variable cost is $10.

Price is greater than average variable cost in excess of $5.

The $5 covers some of the average fixed cost.

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