A firm's fixed but avoidable costs are $100,000 and its variable costs are $250 per unit.It produces 50,000 units and prices it at $400 per unit.In the long-run,how low can price go before the firm decides to shut down?
A)$150
B)$252
C)$250.20
D)$400

Question

A firm's fixed but avoidable costs are $100,000 and its variable costs are $250 per unit.It produces 50,000 units and prices it at $400 per unit.In the long-run,how low can price go before the firm decides to shut down?
A)​$150
B)$252
C)$250.20
D)​$400

Quizplus · Accepted Answer

To determine the shutdown price, we need to find the price where the firm's total revenue is just enough to cover its total variable and fixed costs. 
Total variable cost = $250/unit x 50,000 units = $12,500,000 
Total cost = $100,000 + $12,500,000 = $12,600,000 
Break-even price = Total cost / Number of units sold = $12,600,000 / 50,000 = $252. 
Therefore, the firm will shut down if the price goes below $252. Choice B is the only option that is below the break-even price.

A Firm's Fixed but Avoidable Costs Are $100,000 and Its