Lee, J Brand, Joe's Jeans, Paper Denim & Cloth, Levi's, Wrangler, and many others are all producers of jeans. J Brand jeans sell for $200 a pair. Suppose at the profit maximizing quantity, J Brand's ATC was $220 and AVC was $110, which statement is true?

Question

Quizplus · Accepted Answer

J Brand will continue to produce in the short run because its price exceeds its AVC. However, since its ATC is greater than its selling price, J Brand is making a loss on each unit produced. Over the long run, if J Brand cannot reduce its costs or increase its selling price, it will eventually go out of business.