Exhibit 8.7

-Refer to Exhibit 8.7,which shows the demand and the cost curves of a perfectly competitive firm.What is this firm better off doing in the short run?

Question

Exhibit 8.7
 
-Refer to Exhibit 8.7,which shows the demand and the cost curves of a perfectly competitive firm.What is this firm better off doing in the short run?

Quizplus · Accepted Answer

The firm should continue to produce in the short run because it is able to recover its variable costs and make a contribution to fixed costs. Shutting down would result in losses equal to its fixed costs, and increasing production would not be profitable given the low market price. Producing something else or raising the price may not be feasible in the short run due to the constraints of the perfectly competitive market.

Exhibit 8.7 -Refer to Exhibit 8.7,which Shows the Demand and the Cost