If the price is $7/unit, this firm should ___________ in the short run and ______________ in the long run.shut down ... shut downproduce 30 units a week ... shut downproduce 30 units/week ... produce 20 units/weekproduce 60 units per week ... produce 30 units per week
Question
If the price is $7/unit, this firm should ___________ in the short run and ______________ in the long run.shut down ... shut downproduce 30 units a week ... shut downproduce 30 units/week ... produce 20 units/weekproduce 60 units per week ... produce 30 units per week
Solution
To answer this question, we need more information about the firm's costs and revenues.
In the short run, a firm should continue to operate if the price is greater than or equal to the variable cost per unit. If the price is less than the variable cost per unit, the firm should shut down.
In the long run, a firm should continue to operate if the price is greater than or equal to the average total cost per unit. If the price is less than the average total cost per unit, the firm should shut down.
Without information on the firm's costs, it's impossible to determine what the firm should do in the short run and the long run.
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