Consider the following short- run cost curves for a profit- maximizing firm in a perfectly competitive industry.
FIGURE 9- 2
-Refer to Figure 9- 2.If the market price is $2,the firm will

Question

Consider the following short- run cost curves for a profit- maximizing firm in a perfectly competitive industry.
  FIGURE 9- 2
-Refer to Figure 9- 2.If the market price is $2,the firm will

Quizplus · Accepted Answer

At a market price of $2, the firm will continue operating in the short run, producing the output level where MC=MR, which is 300 units. Producing any output level below 300 units would lead to a loss greater than its fixed cost. The firm's total cost at 300 units of output is $900 ($500 TVC + $400 TFC). Its total revenue at 300 units of output is $600 ($2 x 300). Thus, the firm's loss in the short run is $300 which is less than its fixed cost of $400. Therefore, it is better for the firm to continue operating in the short run and suffer a loss less than its fixed cost.

Consider the Following Short- Run Cost Curves for a Profit-