For a particular competitive firm, the minimum value of average variable cost (AVC) is $12 and is reached when 200 units of output are produced. For the same firm, the minimum value of average total cost (ATC) is $15 and is reached when 230 units of output are produced. Which of the following statements is correct?
A)In the short run, the firm will shut down if the price of its product is $14.
B)In the long run, the firm will shut down if the price of its product is $11.
C)For this firm, the minimum value of variable cost (VC) is $2,400.
D)If the firm's fixed cost (FC) amounts to $500, then the firm cannot earn a positive profit unless the price of its product exceeds $16.

Question

Quizplus · Accepted Answer

A) We can determine if the firm will shut down in the short run by comparing the price of the product to the minimum AVC. If the price is less than the minimum AVC, the firm will shut down. Therefore, if the price of the product is $14, the firm will not shut down as $14 is greater than the minimum AVC of $12.

B) In the long run, the firm will shut down if the price of the product is less than the minimum ATC. Therefore, if the price of the product is $11, the firm will shut down as $11 is less than the minimum ATC of $15.

C) The minimum value of VC cannot be determined from the information given. We only know the minimum value of AVC and the quantity of output at which it is reached.

D) To determine the minimum price at which the firm can earn a positive profit, we need to calculate the breakeven price. The breakeven price is calculated as follows: 
Breakeven price = (FC + VC)/Q + ATC
Substituting the given values, we get: 
Breakeven price = ($500 + VC)/Q + $15
We do not know the value of VC, so we cannot determine the breakeven price or if the firm can earn a positive profit unless the price of its product exceeds $16.

For a Particular Competitive Firm, the Minimum Value of Average