Refer to the accompanying table.A firm participating in a competitive market with these costs would be indifferent about producing or shutting down if the price is:

Question

Quizplus · Accepted Answer

To determine if a firm should shut down or produce, it needs to compare its total revenue (price times quantity sold) with its total variable cost (sum of costs that vary with output, such as labor and materials).

At a price of $4, the firm's total revenue would be $4 times 3 units sold = $12. 
Its total variable cost at this output level would be $5 + $3 + $1 = $9. 
Therefore, the firm's total profit at this output level would be $12 - $9 = $3.

If the price were to drop below $4, the firm's total revenue would fall below its total variable cost, meaning it would be better off shutting down and not producing anything.

If the price were to rise above $4, the firm's total revenue would exceed its total variable cost, and it would be profitable to continue producing.

Therefore, the firm would be indifferent between producing and shutting down only if the price were equal to its minimum average variable cost (which is $4 in this case).

Refer to the Accompanying Table