The Razor-Thin Disposable Razor Company is a perfectly competitive firm producing where MR = MC. The current market price of a disposable razor is $3.00. The firm sells 1,800 disposable razors. Its AVC is $2.00 and its AFC is $1.50. What should Razor-Thin do?
A) Continue to produce because price exceeds AVC.
B) Shut down and produce zero razors because price is less than ATC.
C) Decrease production so that AVC will decrease.
D) Increase production so that AFC will decrease.

Question

Quizplus · Accepted Answer

Since the price exceeds AVC ($3.00 > $2.00), it covers the variable costs, meaning the firm should continue to produce in the short run to contribute to covering its fixed costs.

The Razor-Thin Disposable Razor Company Is a Perfectly Competitive Firm