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Cost IV 16 14 12 A IL P1=MR1 10 6 4 2 0 02 4 B Po=MRo 6 8 10 12 14 16 18
Cost IV 16 14 12 A IL P1=MR1 10 6 4 2 0 02 4 B Po=MRo 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 Quantity Utilize the graph above, which illustrates average fixed costs, average variable costs, average total costs, and marginal costs of production for a firm in a perfectly competitive market, to answer the following question. If the price is Po what should the firm do? O The firm should shut down in the short-run because price is below AVC. In the long-run, they will assess the market conditions to see whether they should reopen for business or exit the market. O The firm should decrease production because marginal revenue is greater than marginal cost. Therefore, the firm has not maximized operating profits. O The firm should exit the market because firms will soon enter. This will drive the price below ATC, which will cause the firm to earn economic losses. O The firm should increase production because marginal cost is less than marginal revenue. Therefore, the firm has not maximized operating economic profits. O The firm should shut down in the long-run because price is below AVC. In the long-run, they will assess the market conditions to see whether they should reopen for business or exit the market. They will reopen if price remains below AVC.
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