10 Questions
What is the main reason why the farm decides to stay in operation despite making losses?
Because the price is above the average variable cost
If the price declined to $1.50 per pack, what would be the total revenue of the farm at a quantity of 60?
$90
What would be the overall loss of the farm if it continues to operate at a price of $1.50 per pack?
$75
Why is shutting down preferable to selling at a price of $1.50 per pack?
Because the farm can avoid paying its fixed costs
What is the shutdown point of the farm?
When the price is below the average variable cost
If the farm decides to shut down, what would be its overall loss?
$62
What is the profit maximizing choice for the farm when the price is above the average variable cost?
To continue operating
What is the relationship between the price and the average variable cost at the shutdown point?
The price is below the average variable cost
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
What is the purpose of the shutdown rule in the context of the farm's decision-making?
To determine when to shut down
This quiz is based on Table 8.6, which shows the cost of production for a raspberry farm. It covers the concept of a firm's shut down point and how it relates to average variable cost. Test your understanding of microeconomic principles and cost analysis.
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