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Microeconomics: Firm's Shut Down Point

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Questions and Answers

What is the main reason why the farm decides to stay in operation despite making losses?

Because the price is below the average total cost

Because the price is above the marginal revenue

Because the price is above the average variable cost (correct)

Because the price is above the average fixed cost

If the price declined to $1.50 per pack, what would be the total revenue of the farm at a quantity of 60?

$60

$150

$120

$90 (correct)

What would be the overall loss of the farm if it continues to operate at a price of $1.50 per pack?

$60

$75 (correct)

$90

$45

Why is shutting down preferable to selling at a price of $1.50 per pack?

Because the farm can avoid paying its fixed costs Signup and view all the answers

What is the shutdown point of the farm?

When the price is below the average variable cost Signup and view all the answers

If the farm decides to shut down, what would be its overall loss?

$62 Signup and view all the answers

What is the profit maximizing choice for the farm when the price is above the average variable cost?

To continue operating Signup and view all the answers

What is the relationship between the price and the average variable cost at the shutdown point?

The price is below the average variable cost Signup and view all the answers

What is the main difference between fixed costs and variable costs?

Fixed costs are fixed in the short run, while variable costs are variable in the short run Signup and view all the answers

What is the purpose of the shutdown rule in the context of the farm's decision-making?

To determine when to shut down Signup and view all the answers