We know this firm is operating in the shortrun as it has both variable and fixed costs. At a quantity of 4, what is the minimum price this firm must receive before it would shutdown.

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We need to restate the given problem and then examine what is required to determine the shutdown price in the short run.

Question restated: The firm is operating in the short run and incurs both variable costs (VC) and fixed costs (FC). At a quantity of 4 units, what is the minimum price the firm must receive before it would shutdown? The provided answer indicates 25, but the answer options are not given.

Key concept to apply: In the short run, a perfectly competitive firm shuts down if the market price falls below its minimum average variable cost (AVC) at the current output level. The relevant threshold is P = AVC at q = 4. If P >= AVC(4), the firm covers its variable costs and contributes to fixed costs; if P < AVC(4), the firm should shut down.

Step-by-step analysis without the missing data:
- Identify what determines shutdown: the price must cover average variable costs, not total costs, because fixed costs are sunk in the short run and must be paid regardless of output.
- To compute AVC at q = 4, we would need the total variable cost at q = 4 (VC(4)) and divide by the quantity (AVC(4) = VC(4)/4).
- However, the problem statement does not provide VC(4) or the function for variable costs, nor any cost table or total cost data. Without VC(4), AVC(4) cannot be calculated, so we cannot determine the exact shutdown price.

What we can say conceptually:
- If the statement were that the shutdown price is AVC at q = 4, any numeric answer would have to come from VC(4)/4.
- If the given answer is 25, that would imply AVC(4) = 25, i.e., VC(4) = 4 × 25 = 100. But since we lack the cost data, we cannot verify whether VC(4) indeed equals 100 or whether AVC(4) equals 25.
- If one were to judge the problem structure: the correct approach would be to compute AVC at q = 4 from the variable cost schedule and declare the shutdown price as that AVC value; any numeric result must be grounded in VC data, which is not provided here.

In summary, due to the missing cost data (specifically VC at q = 4 or the VC function), we cannot validate the proposed shutdown price of 25 or derive a different shutdown price. The correct reasoning would require AVC(4) = VC(4)/4, and the minimum price for which the firm would continue operating is P = AVC(4). If you can supply VC(4) or the variable cost function, I can compute the exact AVC(4) and confirm whether 25 is correct or provide the correct value.

ECON&201 15109 Applied Economics: Cost Curve Modeling

We know this firm is operating in the shortrun as it has both variable and fixed costs. At a quantity of 4, what is the minimum price this firm must receive before it would shutdown.

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ECON&201 15109 Applied Economics: Cost Curve Modeling

We know this firm is operating in the shortrun as it has both variable and fixed costs. At a quantity of 4, what is the minimum price this firm must receive before it would shutdown.

View Explanation

Log in for full answers

Similar Questions

Assume that, for a perfectly competitive firm, marginal cost equals average variable cost at $10, marginal cost equals average total cost at $15, and marginal revenue equals marginal cost at $12. On the basis of this information, the firm should

Suppose a profit-maximising firm in a competitive market is unable to generate enough revenue to pay all of its fixed costs. In the short run it should:

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: ​ Refer to Figure 14-1. If the market price falls below $6, the firm will earn

In the short run, when a profit-maximizing, perfectly competitive firm is producing at the quantity where MR = MC and the firm’s total revenue is less than its total variable cost, the firm should

Figure 14-1Suppose that a firm in a competitive market has the following cost curves:​Refer to Figure 14-1. The firm should shut down if the market price is

Consider the graph below. If the price facing this firm was $2, what would their profits be? Note: if the firm would be better off shutting down than producing, the answer should be 0 (zero). Profit = _____

Figure 15-1Suppose that a firm in a competitive market has the following cost curves:Refer to Figure 15-1. If the market price is $5, the firm will earn

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Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: Refer to Figure 14-1. If the market price falls below $6, the firm will earn

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