Marie Kaye sells buffalo burgers in a perfectly competitive market. At her current level of output, marginal cost is $6, average total cost is $5.50 per unit, and average variable cost is $4.50 per unit. Her buffalo burgers sell for $5 each. Based on the given information, Marie Kaye should shut down to minimize her losses.

Question

Quizplus · Accepted Answer

Marie Kaye should continue operating in the short run because the price of her buffalo burgers ($5) is above her average variable cost ($4.50). In a perfectly competitive market, the shutdown decision is based on whether the price covers the average variable costs. Since it does, she should not shut down immediately as she is covering her variable costs and contributing to some of her fixed costs.

Marie Kaye Sells Buffalo Burgers in a Perfectly Competitive Market