If the price of a product is $12, its average total cost is $2 and its average total cost is $15 at the profit-maximizing output level, in the short run the firm:

Question

If the price of a product is $12, its average total cost is $2 and its average total cost is $15 at the profit-maximizing output level,  in the short run the firm:

Quizplus · Accepted Answer

The average total cost ($15) is greater than the price ($12), indicating that the firm is experiencing a loss in the short run. The firm should not expand output since it is already producing at the profit-maximizing level. If the firm were to produce more, it would incur additional costs and further increase its losses. The firm may not necessarily have to shut down if it can cover its variable costs and contribute towards its fixed costs. However, in this scenario, the firm is not able to cover its total costs, indicating that it is not able to cover its fixed costs either.

If the Price of a Product Is $12, Its Average