Mrs. Smith operates a business in a competitive market. The current market price is $8.50. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should

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Mrs. Smith should continue to operate in both the short run and long run because she is earning a positive economic profit (revenue is higher than total cost) since the price she receives ($8.50) is greater than her average total cost ($8.25). Even though her average variable cost is $8.00, she is still covering all her variable costs and contributing towards her fixed costs by operating. Therefore, it is optimal to continue operating in both the short run and long run as long as she is earning economic profit.

Mrs Smith Operates a Business in a Competitive Market