Homer's Holesome Donuts has determined that its profit-maximizing quantity is 10,000 donuts per year.Homer's total revenue from the sale of donuts is $12,000 a year.Homer's costs are $16,000 in annual rental payments for its five-year lease on its store and $5,000 for ingredients.Should Homer's exit the market in the long run?

Question

Quizplus · Accepted Answer

Homer's is incurring an economic loss because its total revenue from the sale of donuts is less than its total costs, including both variable and fixed costs. In the long run, Homer's should exit the market to avoid continuing to operate at a loss.

Homer's Holesome Donuts Has Determined That Its Profit-Maximizing Quantity Is