Claude's Copper Clappers sells clappers for $40 each in a competitive price-taker market. At its present rate of output, Claude's marginal cost is $40, average variable cost is $45, and average total cost is $60. Claude 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

Claude's Copper Clappers is currently producing at a loss since the average total cost is greater than the price it is selling clappers for. Therefore, Claude should shut down in the short run to minimize losses. In the long run, Claude should consider exiting the market or decreasing costs to produce at a lower average total cost.

Claude's Copper Clappers Sells Clappers for $40 Each in a Competitive