A profit-maximizing firm is producing where MR = MC and has an average total cost of $4, but it gets a price of $3 for each good it sells.a. What would you advise the firm to do?The firm should shut down in the short run and exit the market in the long run.The firm is producing where MR = MC, so it should produce in both the short run and long run.As long as average variable costs are less than $3, in the short run, the firm should produce. In the long run, it should exit the market.The firm should shut down in the short run. Once the firm recoups its fixed costs, it should produce in the long run.b. What would you advise the firm to do if you knew average variable costs were $3.50?The firm should exit the market in the long run, but it should produce in the short run since it is covering average fixed costs.The firm should shut down in the short run. Once the firm recoups its fixed costs, it should reopen in the long run.The firm should shut down in the short run and exit the market in the long run.The firm is producing where MR = MC, so it should produce in both the short run and long run.

a) Although the firm is operating at MR = MC, the price is less than ATC. Yet a firm produces in the…

Answered: A profit-maximizing firm is producing…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A profit-maximizing firm is producing where MR = MC and has an average total cost of $4, but it gets a price of $3 for each good it sells.

a. What would you advise the firm to do?

The firm should shut down in the short run and exit the market in the long run.
The firm is producing where MR = MC, so it should produce in both the short run and long run.
As long as average variable costs are less than $3, in the short run, the firm should produce. In the long run, it should exit the market.
The firm should shut down in the short run. Once the firm recoups its fixed costs, it should produce in the long run.

b. What would you advise the firm to do if you knew average variable costs were $3.50?

The firm should exit the market in the long run, but it should produce in the short run since it is covering average fixed costs.
The firm should shut down in the short run. Once the firm recoups its fixed costs, it should reopen in the long run.
The firm should shut down in the short run and exit the market in the long run.
The firm is producing where MR = MC, so it should produce in both the short run and long run.

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