Figure 9-4
Figure 9-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.
-Refer to Figure 9-4.If the market price is $30,should the firm represented in the diagram continue to stay open?

Question

Figure 9-4
  Figure 9-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.
-Refer to Figure 9-4.If the market price is $30,should the firm represented in the diagram continue to stay open?

Quizplus · Accepted Answer

At a market price of $30, the firm is producing at a quantity of 2 units where its average variable cost is $25. Therefore, it is covering its variable cost and a portion of its fixed cost. As long as the firm is covering its variable cost, it should continue to operate in the short-run, even if it is not making a profit. Therefore, option C is correct. Options A and B are incorrect because the firm is not making a loss, and it is covering its variable cost. Option D is incorrect because at a market price of $30, the firm is not making a profit but only covering some of its costs.

Figure 9-4 Figure 9-4 Shows the Cost and Demand Curves