Equilibrium price is $8 in a perfectly competitive market.For a perfectly competitive firm,MR = MC at 150 units of output.At 150 units,ATC is $11,and AVC is $10.The best policy for this firm is to __________ in the short run.Also,total fixed cost equals __________ and total variable cost equals __________ for this firm.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, a firm should shut down in the short run if the price is below the minimum point of the AVC curve. At 150 units of output, the firm's AVC is $10, which is higher than the equilibrium price of $8. Therefore, the firm should shut down.

Total fixed cost is the cost that must be incurred regardless of the level of output. At the shut-down point, the only cost that the firm incurs is its fixed cost, which is $150.

Total variable cost is the cost that varies with the level of output. At 150 units of output, the firm's AVC is $10, so its total variable cost is 150*$10=$1,500. Since the firm should shut down, its total variable cost doesn't matter in this case.

Equilibrium Price Is $8 in a Perfectly Competitive Market