If the market price is $50 for a unit of a good produced in a perfectly competitive market and the firm's minimum average variable cost is $52,then to maximize its profit (or minimize its loss)the firm should
A) definitely produce the unit.
B) shut down.
C) not produce the unit but remain open.
D) not produce the unit. Whether the firm should shut down or remain open cannot be determined without more information.
E) produce the unit only if the price exceeds the average fixed cost.

Question

Quizplus · Accepted Answer

Since the market price of $50 is below the firm's minimum average variable cost of $52, the firm would incur a loss if it produced the unit. Therefore, the best option for the firm is to shut down, as it would still incur its fixed costs but avoid incurring any additional variable costs.

If the Market Price Is $50 for a Unit of a Good