Question

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. ​Yes, it should continue to produce because the​ firm's revenues cover the total variable cost of​ $16,000. B. ​Yes, it should continue to produce because its price exceeds its average fixed cost. C. ​No, it should shut down because it is making a loss. D. There is insufficient information to answer the question.

Answer 1

Answer:

 A. ​Yes, it should continue to produce because the​ firm's revenues cover the total variable cost of​ $16,000. 

Explanation:

A perfect competition is characterised by many buyers and sellers of homogenous goods and services. Market prices are set by the forces of demand and supply. Market participants are price takers.

In the short run ,if price is less than average variable cost, the firm should shutdown.

Also, if total revenue is less than the total variable cost, the firm should shutdown into the short run.

Total revenue = $10 x 3000 = $30,000

Total cost = Fixed cost + variable cost

$36,000 = $20,000 + variable cost

Variable cost = $16,000

Total revenue is greater than total variable cost, so the firm should continue operations in the short run.

I hope my answer helps you