You're called in as a consultant: Price is $24. At a production level of 200 units, MC = MR, AFC = $6, and AVC = $25. What do you advise this firm to do?
A) Increase output.
B) Decrease output.
C) Shut down operations.
D) Stay at the current output; the firm is earning a profit of $1,400.
E) Stay at the current output; the firm is losing $1,400.

Question

Quizplus · Accepted Answer

The firm should shut down operations because the price ($24) is less than the average variable cost ($25), indicating that the firm cannot cover its variable costs at this production level, leading to a loss greater than its fixed costs if it continues operating.

You're Called in as a Consultant: Price Is $24