Suppose a price-taking firm produces 400 units at its optimal output level.At that output rate marginal cost is $200, average total cost is $240, and average variable cost is $170.What can you determine about the market price that would force the firm to shut down in the short run?

Question

Quizplus · Accepted Answer

In the short run, a firm will shut down if the market price falls below its minimum average variable cost (AVC). In this case, the AVC is $170. Therefore, if the market price falls below $170, the firm will shut down in the short run. Choices A, B, D, and E are not correct because they do not fall below the AVC of $170.

Suppose a Price-Taking Firm Produces 400 Units at Its Optimal