Figure 10.4

Figure 10.4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.
-Refer to Figure 10.4.If the market price is $30, should the firm represented in the diagram continue to stay in business?

Question

Figure 10.4
  
Figure 10.4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.
-Refer to Figure 10.4.If the market price is $30, should the firm represented in the diagram continue to stay in business?

Quizplus · Accepted Answer

At a market price of $30, the firm is able to cover its variable cost and part of its fixed cost. Although it is not making a profit, shutting down would mean incurring a loss equal to its fixed cost. Therefore, the best option for the firm is to continue operating and try to cover all its costs in the long run.

Figure 10.4 Figure 10.4 Shows the Cost and Demand Curves for a and Demand