1 - The Specialty Cake Store, a monopolistically competitive firm, is producing 200 decorated cakes per day and selling each cake for $17. At that production level ATC is $20, AVC is $15, AFC is $5, and both MR and MC are $8. In the short run, this firm should a) shutdown and produce zero cakes and pay fixed costs. b) increase output to the point where price equals marginal cost. c) continue to produce 200 cakes, as price is greater than AVC. d) decrease output to the point where price equals average total cost.
1 - The Specialty Cake Store, a monopolistically competitive firm, is producing 200 decorated cakes per day and selling each cake for $17. At that production level ATC is $20, AVC is $15, AFC is $5, and both MR and MC are $8. In the short run, this firm should a) shutdown and produce zero cakes and pay fixed costs. b) increase output to the point where price equals marginal cost. c) continue to produce 200 cakes, as price is greater than AVC. d) decrease output to the point where price equals average total cost.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:1 -
The Specialty Cake Store, a monopolistically competitive firm, is producing 200 decorated cakes per day and selling
each cake for $17. At that production level ATC is $20, AVC is $15, AFC is $5, and both MR and MC are $8. In the short
run, this firm should
a)
shutdown and produce zero cakes and pay fixed costs.
b)
increase output to the point where price equals marginal cost.
c)
continue to produce 200 cakes, as price is greater than AVC.
d) decrease output to the point where price equals average total cost.
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