Question

A perfectly competitive small organic farm that produces 1,000 cauliflower heads in the short run has an ATC = $6 and AFC = $2. The market price is $3 per head and is equal to MC. In order to maximize profits (or minimize losses), this farm should:

Answer 1

Answer:

the firm should shut down, at least temporarily until the marginal revenue increases or definitely if the marginal revenue doesn't increase

Explanation:

if average total costs = $6 and average fixed costs = $2, then average variable costs = $6 - $2 = $4

since the average variable costs are higher than marginal revenue: $4 > $3, then the company is losing money (-$1) every time it sells its products.