which is the correct answer and why? thank you so much! 27. Suppose a firm is pr

Question

which is the correct answer and why? thank you so much!

27. Suppose a firm is producing 1,000 units of output at an average fixed cost of $3 and an average variable cost of $2. If the firm can sell the 1,001 unit for $4, should the firm produce the 1,001st unit? a) Yes, because the additional revenue is greater than the average variable cost. b) Yes, because the additional revenue is greater than the average fixed cost. c) No, because the additional revenue is less than the average total cost. d) None of the above statements are correct.

Explanation / Answer

a firm here should produce because the additional revenue is greater than the shut down price, at this given price the firm is able to recover its variable cost and that is the necessary requirement.

thus answer is A

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