Equilibrium price is $10 in a perfectly competitive market. For a perfectly competitive firm, MR = MC at 1,200 units of output. At 1,200 units, ATC is $23, and AVC is $18. The best policy for this firm is to __________ in the short run. Also, this firm earns __________ of __________ if it produces and sells 1,200 units.

Question

Quizplus · Accepted Answer

The firm should shut down in the short run because the price ($10) is less than the AVC ($18), meaning it cannot cover its variable costs. The loss if it continues to produce is calculated as (ATC - Price) * Quantity = ($23 - $10) * 1,200 = $15,600.

Equilibrium Price Is $10 in a Perfectly Competitive Market