A perfectly competitive firm will operate and incur an economic loss in the shor

Question

A perfectly competitive firm will operate and incur an economic loss in the short run if the loss is smaller than its total fixed costs. it knows it can recoup the loss in the long run. shareholders do not know about the loss. the loss can offset future profits. The table below shows output and costs of Evan's Subs, a typical perfectly competitive firm in a local market for sandwiches. Evan's fixed cost is $9 per hour. The current market price of a sandwich is $8. Answer questions 8 through 11 based on the numbers in the table. What is Evan's marginal revenue from the 2nd sandwich sold? If Evan's sells the 5th sandwich, the marginal cost is the marginal revenue, so the firm's profit greater than: decreases greater than; increases less than: increases less than: decreases What quantity of sandwiches produced will maximize Evan's economic profit in the short run? 2 sandwiches per hour 3 sandwiches per hour 4 sandwiches per hour 5 sandwiches per hour If the market price does not change. Evan's will continue to operate in the short run but will exit the industry in the long run. continue to operate in the short run and in the long run. shut down increase its production in the long run.

Explanation / Answer

7)

A) the loss is smaller than the fixed costs

because in this case the company is able to cover the all variable costs and to some extent the fixed costs in the short run, and as we know that the keeping shut down, anyway the company is going to expense fixed costs, So it makes sense to continue untill it is able to cover variable and some of the fixed costs, so in this case loss will be less.

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