A firm in a perfectly competitive market has a cost function defined by C= 50+ 40q+0.5q^2. (Hint: Given this cost function, Marginal Cost = 40 + q.) Consider a short-run situation where the current market price is $45. Which of the following statements is CORRECT? O At a price of $45, the firm will be making loss of $77.5. Given the cost function, the firm will lose $50 in fixed costs. Therefore, the firm should shut down since the loss incurred by operating is more than the loss incurred from fixed costs. O At a price of $45, the firm will be making loss of $37.5. Given the cost function, the firm will lose $50 in fixed costs from shutting down. Therefore, the firm should continue to produce as long as the loss incurred by operating is less than the loss incurred from fixed costs. O At a price of $45, the firm will earn revenue of $225 and so it should continue to produce. O At a price of $45, the firm will be making a loss of $37.5 and so it should shut down.

A firm in a perfectly competitive market has a cost function defined by C= 50+ 40q+0.5q^2. (Hint: Given this cost function, Marginal Cost = 40 + q.) Consider a short-run situation where the current market price is $45. Which of the following statements is CORRECT? O At a price of $45, the firm will be making loss of $77.5. Given the cost function, the firm will lose $50 in fixed costs. Therefore, the firm should shut down since the loss incurred by operating is more than the loss incurred from fixed costs. O At a price of $45, the firm will be making loss of $37.5. Given the cost function, the firm will lose $50 in fixed costs from shutting down. Therefore, the firm should continue to produce as long as the loss incurred by operating is less than the loss incurred from fixed costs. O At a price of $45, the firm will earn revenue of $225 and so it should continue to produce. O At a price of $45, the firm will be making a loss of $37.5 and so it should shut down.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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