Assume a firm has the following cost and revenue characteristics at its current level of output: price=$8.00,average variable cost=$6.00 and average fixed cost =$4.00.In the long run,the firm
A)Should shut-down as its making a loss of $2
B)Should continue operating as long as it is covering the variable costs of $6
C)Should continue operating as long as it is covering the fixed costs of $4
D)Should not shut down

Question

Quizplus · Accepted Answer

In the long run, the firm should shut down if it is making a loss. Here, total cost (average variable cost + average fixed cost) is $10, which is greater than the price ($8), resulting in a loss of $2 per unit.

Assume a Firm Has the Following Cost and Revenue Characteristics