Suppose the firm sells its product at a price of $10 to all customers. MR=MC at

Question

Suppose the firm sells its product at a price of $10 to all customers. MR=MC at a level of output equal to 20 units. Also, total costs equal $300 and total variable costs equal $220 at an output of 20 units. Then:

A. The firm should shut down rather than operate in the short run.
B. Since fixed costs are covered, the firm should produce and sell 20 units.
C. The firm should expand production until average revenue exceeds average costs.
D. The firm should produce 20 units because average revenue exceeds average variable cost.

Explanation / Answer

Since it is not covering its variable costs, the firm should shut down.

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