Suppose a perfectly competitive firm can produce 20,000 bushels of corn a year at an output at which marginal cost equals marginal revenue. The market price of corn per bushel is $2.00. The firm's total costs per year are $50,000 and fixed costs per year are $25,000. In the short run, this firm should

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In the short run, the firm should produce 20,000 bushels of corn even if they are losing money, because they are covering their variable costs and making some contribution towards their fixed costs. Shutting down would cause them to lose the entire $50,000 in total costs. Producing more than 20,000 bushels would result in increasing marginal costs, thus decreasing economic profit. Therefore, the best option for the firm is to produce 20,000 bushels of corn.

Suppose a Perfectly Competitive Firm Can Produce 20,000 Bushels of Corn