A shoe manufacturer is producing at a point where its marginal costs are $5 and its fixed costs are $5000.At the current price of $10 it is producing 500 pairs.If the demand goes down,such that they can now only charge $8 per pair,should they continue production in the short run?
A)No because price has fallen
B)Yes because price is still higher than marginal costs
C)No because price is lower than average cost
D)Yes because price is higher than marginal costs

Question

​A shoe manufacturer is producing at a point where its marginal costs are $5 and its fixed costs are $5000.At the current price of $10 it is producing 500 pairs.If the demand goes down,such that they can now only charge $8 per pair,should they continue production in the short run?
A)​No because price has fallen
B)Yes because price is still higher than marginal costs
C)No because price is lower than average cost
D)​Yes because price is higher than marginal costs

Quizplus · Accepted Answer

As long as the price ($8) is still higher than the marginal cost ($5), the shoe manufacturer should continue production in the short run to cover the variable costs and make a profit towards the fixed costs. Therefore, the best choice is B.

​A Shoe Manufacturer Is Producing at a Point Where Its

A Shoe Manufacturer Is Producing at a Point Where Its