Rose growing is a Perfectly competitive industry and all rose growers have the s

Question

Rose growing is a Perfectly competitive industry and all rose growers have the same costs. The market Price of roses $26 a bunch and each grower maximizes Profit by Producing 1,500 bunches a week. Average total cost of Producing roses is $18 a bunch and average variable cost is $12 a bunch. What is the Price at the grower's Shutdown Point? The Price at the grower's shutdown point is $12 a bunch What is the price at the grower's shutdown point? The price at the grower's shutdown point is $ a bunch.

Explanation / Answer

There is a perfectly competitive rose growing industry where market price is $26 a bunch and each grower supplies 1500 bunches at this price. ATC is $18 and AVC is $12 a bunch. Minimum of AVC is $4 a bunch.

A firm should continue to operate in the short-run if it is able to cover its variable cost which implies its total revenues are greater than its total cost. In the short-run, if a perfectly competitive firm is charging a price that is unable to cover its average variable cost, then it should shut down in the short-run. Otherwise, it can continue to operate even when it is bearing economic losses.

Note that the minimum of AVC is $4. Since the rose grower is in short run and earning profit, it must operate untill P> Minimum of AVC. So the shut down price is any price below $4 per bunch.

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.