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:

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BlackTom AI · Accepted Answer

To analyze the scenario, we first recall the short-run decision rule for a perfectly competitive firm: a firm should continue producing as long as it can cover its variable costs, even if it cannot cover all fixed costs, because fixed costs are sunk in the short run.
Option 1: 'continue to produce as long as marginal cost is less than average revenue.' In perfect competition, price equals marginal revenue, so this would imply producing while MR > MC; however, the criterion should be about covering variable costs, not just comparing MC to AR. This option misstates the standard shutdown condition and focuses on marginal cost vs average revenue rather than average variable cost.
Option 2: 'continue to produce as long as revenue is sufficient to pay variable costs.' This aligns with the shutdown rule: as long as price (and thus revenue per unit) covers average variable costs, the firm can cover its variable costs and contribute something toward fixed costs, making production preferable to shutting down when fixed costs cannot be fully recovered in the short run.
Option 3: 'continue to produce and lower its price to gain more market share.' In a competitive market, the firm is a price taker and cannot sustainably lower price to gain market share; lowering price would reduce revenue and may not cover variable costs, potentially making the situation worse.
Option 4: 'shut down and incur the total loss of its fixed cost.' This would be appropriate only if revenue could not cover even variable costs (i.e., price < average variable cost). The problem statement indicates the firm cannot pay all fixed costs but does not state that variable costs cannot be covered, so shutdown is not the required move here.
Therefore, the reasoning supports option 2 as the appropriate short-run decision under these conditions.

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:

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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:

查看解析

登录即可查看完整答案

类似问题

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

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

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.

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

In the short run, a perfectly competitive firm should keep producing as long as …

更多留学生实用工具

希望你的学习变得更简单

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