Jose's restaurant operates in a perfectly competitive market. at the point where marginal cost equals marginal revenue, atc = $20, avc = $15, and the price per unit is $10. in this situation,
a. jose's restaurant is earning a positive economic profit.
b. jose's restaurant should shut down immediately.
c. jose's restaurant is losing money in the short run but should continue to operate.
d. the market price will rise in the short run to increase profits.

Question

jaidenlaine1214 jaidenlaine1214

02-05-2018
Business

contestada

Jose's restaurant operates in a perfectly competitive market. at the point where marginal cost equals marginal revenue, atc = $20, avc = $15, and the price per unit is $10. in this situation,
a. jose's restaurant is earning a positive economic profit.
b. jose's restaurant should shut down immediately.
c. jose's restaurant is losing money in the short run but should continue to operate.
d. the market price will rise in the short run to increase profits.

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joccalub joccalub · Answer 1 · 2018-05-14T06:27:19+02:00

Jose's restaurant operates in a perfectly competitive market. At the point where marginal cost equals marginal revenue, The price per unit is $10 which lower than the average variable cost (avc) of $15. In this situation, is obviously not earning a profit. The answer to the question is b. jose's restaurant should shut down immediately.

Since in a perfectly competitive market, a firm cannot dictate or increase the price, A firm is best to shut down production in the short run if the market price false below the average variable cost.