Use the following scenario to answer the following questions:
Lenora and Uma own a dog-grooming business in upstate New York,called Pawkeepsie Groomers.There are many buyers and many sellers in the dog-grooming service market.Pawkeepsie Groomers experiences normal cost curves,with the marginal cost (MC)curve crossing average variable cost (AVC)at $14 and average total cost (ATC)at $22.
-Pawkeepsie Groomers will always shut down if the market price is
A) $14.
B) between $14 and $22.
C) below $14.
D) $22.
E) above $14.

Question

Quizplus · Accepted Answer

Since the MC curve crosses the AVC at $14, this is the minimum price necessary to cover variable costs. However, since the ATC is $22, the firm will experience economic losses if the price is below this amount. Therefore, the firm will shut down if the market price falls below $14.

Use the Following Scenario to Answer the Following Questions