Equilibrium price is $25 in a perfectly competitive market. For a perfectly competitive firm, MR = MC at 2,000 units of output. At 2,000 units, ATC is $33, and AVC is $27. 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

The firm should shut down in the short run because the price ($25) is less than the average variable cost ($27). Total fixed cost is calculated as (ATC - AVC) * quantity = ($33 - $27) * 2,000 = $12,000. Total variable cost is AVC * quantity = $27 * 2,000 = $54,000.

Equilibrium Price Is $25 in a Perfectly Competitive Market