Question 8 0 out of 1 points E3Consider the following data: equilibrium price -

Question

Question 8 0 out of 1 points E3Consider the following data: equilibrium price - SIO, quantity of output prodaced -100 units, average total cost $13, and average variable cost-$7. What will tbe firm do and why? Selected Answer a. Shut down in the short run, because it is taking a loss of $200 Answers: a. Shut down in the short run, because it is taking a loss of $200 b. Continue to produce in the short run, because price is greater than average variable cost . Shut down in the short run, because average variable cost is less than average total cost d. Continue to produce in the short run, because firms are always stuck with having to produce in the short run

Explanation / Answer

Question 8

In the short-run, a firm remain in operation until price is greater than the average variable cost.

In given case, equilibrium price is $10 while average variable cost is $7.

So,

In short-run, firm should continue to produce as price is greater than the average variable cost.

Hence, the correct answer is the option (b).

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