Answer the question on the basis of the following cost data for a firm that is selling in a purely competitive market. $\begin{array}{ccccc}
& \text { Average } & \text { Average } & \text { Average } & \
\text { Total } & \text { Fixed } & \text { Variable } & \text { Total } & \text { Marginal } \
\text { Output } & \text { Cost } & \text { Cost } & \text { Cost } & \text { Cost }\
\hline
1 & \$ 150.00 & \$ 25.00 & \$ 175.00 & \$ 25.00 \
2 & 75.00 & 23.00 & 98.00 & 21.00 \
3 & 50.00 & 20.00 & 70.00 & 14.00 \
4 & 37.50 & 21.00 & 58.50 & 24.00 \
5 & 30.00 & 23.00 & 53.00 & 31.00 \
6 & 25.00 & 25.00 & 50.00 & 35.00 \
7 & 21.43 & 28.00 & 49.43 & 46.01 \
8 & 18.75 & 33.00 & 51.76 & 68.07 \
9 & 16.67 & 39.00 & 55.67 & 86.95 \
10 & 15.00 & 48.00 & 63.00 & 128.97
\end{array}$ Refer to the data.If the market price for this firm's product is $15,it will produce:
A) 0 units at a loss of $150.
B) 3 units at a loss of $168.
C) 3 units at an economic profit of zero.
D) 4 units at a loss of $138.

Question

Quizplus · Accepted Answer

Since the market price is $15 and the marginal cost of producing one unit is above $15 for all levels of output, the firm should not produce any units to avoid losses. The firm's lowest average total cost is $15 when it produces six units, but at that level, the marginal cost is $35, which is above the market price. Therefore, the firm should shut down and not produce any units. The total fixed cost of $150 will be a sunk cost and contribute to the firm's losses. Thus, the best choice is to produce 0 units at a loss of $150.

Answer the Question on the Basis of the Following Cost