The graph above shows the marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves for a firm. If the market price is $100 per ton, the firm will maximi... The graph above shows the marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves for a firm. If the market price is $100 per ton, the firm will maximize profits or minimize losses by doing which of the following?
Understand the Problem
The question is asking which production decision a firm should make based on the provided cost curves in relation to a market price of $100 per ton. It involves understanding concepts from economics, particularly cost structures and profit maximization.
Answer
Producing 0 tons and shutting down in the short run.
The correct choice is producing 0 tons and shutting down in the short run since the market price of $100 is below the AVC and ATC curves at any production quantity.
Answer for screen readers
The correct choice is producing 0 tons and shutting down in the short run since the market price of $100 is below the AVC and ATC curves at any production quantity.
More Information
When the market price is below the AVC and ATC, the firm should shut down in the short run to minimize losses. The operating loss would be greater than the fixed costs saved by not producing.
Tips
Common mistakes include misidentifying the intersections of MC with AVC and ATC. Always ensure the price intersects the MC at or above the AVC for profitability.
Sources
AI-generated content may contain errors. Please verify critical information
