Scenario: The fixed cost of producing 500 units of Good Y is $25,000, while the variable cost of producing 500 units of Good Y is $60,000.
-Refer to the scenario above.If the market for Good Y is monopolistically competitive,a firm producing Good Y will shut down production in the short run if price falls below ________.

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, a firm will shut down in the short run if the price falls below its average variable cost (AVC). The total variable cost for producing 500 units is $60,000, so the AVC = $60,000 / 500 = $120. Therefore, if the price falls below $120, the firm will shut down production in the short run.

Scenario: the Fixed Cost of Producing 500 Units of Good