The Taste Freeze Ice Cream Company is a perfectly competitive firm producing where MR = MC. The current market price of an ice cream sandwich is $5.00. Taste Freeze sells 200 ice cream sandwiches. Its AVC is $4.00 and its AFC is $3.00. What should Taste Freeze do?
A) Continue to produce because price exceeds AVC.
B) Shut down and produce zero sandwiches because price is less than ATC.
C) Decrease production so that AVC will decrease.
D) Increase production so that AFC will decrease.

Question

Quizplus · Accepted Answer

Taste Freeze should continue to produce because the price ($5.00) exceeds the average variable cost (AVC) of $4.00. In the short run, as long as the price covers the AVC, the firm should continue producing to contribute to fixed costs and potentially make a profit.

The Taste Freeze Ice Cream Company Is a Perfectly Competitive