Consider a firm that produces 500,000 units per year.The firm's fixed costs are $100,000,marginal costs are $250 and the price per unit is $400.In the short-run,how low can price go before it is profitable to shut down?

Question

Quizplus · Accepted Answer

In the short-run, a firm should shut down if price falls below the minimum average variable cost (MAVC). In this case, we need to find the MAVC:

MAVC = Marginal Cost
MAVC = $250

Therefore, the firm should shut down if the price falls below $250, which is option B.

Consider a Firm That Produces 500,000 Units Per Year