shut down her business in the short run but continue to operate in the long run.

Question

       shut down her business in the short run but continue to operate in the long run.
       continue to operate in the short run but shut down in the long run.
       continue to operate in both the short run and long run.
       shut down in both the short run and long run.

28. Mrs. Smith operates a business in a competitive market. The current market price is $8.50. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should (Points : 5)

Explanation / Answer

answer is continue to operate in both the short run and long run.

As long as the current market price ($8.50) is above average variable costs ($8.00), this means a firm is earning enough revenue to cover all their variable costs and fixed costs. Therefore, the firm should continue to operate in both the short and long run, which is answer C).

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