assume a firm has the following cost and revenue characteristics at its current level of output: price

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05-12-2022
Business

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assume a firm has the following cost and revenue characteristics at its current level of output: price

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kumarprabhat kumarprabhat · Answer 1 · 2022-12-11T11:31:00-05:00

D) Incurring a loss per unit of $2, but should continue to operate in the short run, cost and revenue characteristics at its current level of output: price

The following information is given about the firm's revenue and costs at the current output (q) -

P = price = revenue from selling one unit = $10

AVC = average variable cost = $8

AFC = average fixed cost = $4

The firm's ATC(average total cost) = AVC + AFC = $8 + $4 = $12

Now, P is more than AVC but less than ATC. This means that the firm is incurring a loss but it should not shut down. This is because when P is more than AVC, it means that the firm is still able to recover some part of its total fixed costs(TFC) and the loss is less than TFC in the SR(short run).

So, the loss per unit is

= ATC - P

= $12 - $10

= $2

This loss per unit is lower than the TFC per unit (that is AFC = $4). If the firm decides to shut down at the current q then it will incur a per unit loss = AFC = $4.

assume a firm has the following cost and revenue characteristics at its current level of output: price?

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