A local business sells its product for $40 each in a competitive price-taker market. At its present rate of output, its marginal cost is $40, average variable cost is $45, and average total cost is $60. The business should
A) increase output
B) reduce output but not to zero
C) maintain the present rate of output
D) shut down
E) raise the price

Question

Quizplus · Accepted Answer

The business should shut down because the price ($40) is less than the average variable cost ($45), meaning it cannot cover its variable costs, leading to losses greater than its fixed costs.

A Local Business Sells Its Product for $40 Each in a Competitive