Question 18 2 pts A proft-maximizing strategy becomes a loss minimization strate

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Question 18 2 pts A proft-maximizing strategy becomes a loss minimization strategy when a firm in a perfectly competitive industry is producing where O P>ATC Question 19 2 pts You are hired as an economic consultant to The Pampered Pet Shop. The Pampered Pet Shop operates in a perfectly compestive industry. This firm is currendy producing at point where market price equals its marginal cost. The market price is less than its average variable cost. You should advise the firm to ?cease produchon immediately because it is not covering its venable costs of production. O lower its price so that t can sell more units of output in the short nun to minimize ts loss, but exit the industry in the long run O raise its price unti it breaks ever. Question 20 2 pts The Taste Freeze Ice Cream Company is a MF, MC. The current market pnon of an ice cream sandwich SS00. Taste Free sells 200 ice cream sandwiches, Its AVC is $8.00 and its AFC is $3.00. What should Taste Freeze do? perfectly competitive firm producing where

Explanation / Answer

18. P = ATC

When Price is equal to Average total cost then firm is earning zero profit which is loss minimising output.

19. cease production immediately because it is not covering all its variable cost.

Shut-down point occurs when a firm is not able to cover all its variable cost. Break even point occurs where firm is able to cover all its costs.

20. Continue to produce because price exceeds AFC.

Firm will continue its production because it is able to cover all its fixed cost and some of its variable cost. If firm shut down then it has to bear cost of fixed cost, so firm continue its production.

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