?Initially, the market price is p=181 and the competitive? firm\'s average varia

Question

?Initially, the market price is p=181 and the competitive? firm's average variable cost is 16 while its average cost is 19

Should it shut? down? ? Why?

This firm should

A. not shut down because average fixed cost is less than the market price.

B. shut down because average cost is greater than the market price.

C. not shut downnot shut down because average variable cost is less than the market price.

D.shut down because average fixed cost is less than the market price.

E.not shut down because average cost is greater than average variable cost.

Explanation / Answer

I believe the price is 18.1 and not 181.

The answer is "C", not shut down because the average variable cost is less than the market price. A shutdown point for the firm is when the price falls below the variable cost. If the price is higher they will face a loss because it is below the average total cost but not need to shut down because they can get their variable cost.

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