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 produce in the short run because the price ($200) is above the AVC ($110), covering variable costs. However, since the price is below ATC ($220), they are making a loss and will go out of business in the long run if conditions don't change.