A firm in a competitive market has the following cost structure: Output Total Cost 0 $5 1 $10 2 $12 3 $15 4 $24 5 $40 This is a multiple-choice question, it asked 'If the market price is $4, what will this firm do?'. I answered 'It will shut down in the short run and exit in the long run.' but the correct answer is 'It will produce 3 units in the short run and exit in the long run.' I do not understand how they got that answer by looking at the cost structure.
A firm in a competitive market has the following cost structure: Output Total Cost 0 $5 1 $10 2 $12 3 $15 4 $24 5 $40 This is a multiple-choice question, it asked 'If the market price is $4, what will this firm do?'. I answered 'It will shut down in the short run and exit in the long run.' but the correct answer is 'It will produce 3 units in the short run and exit in the long run.' I do not understand how they got that answer by looking at the cost structure.
Chapter6: Proudction Costs
Section: Chapter Questions
Problem 7SQ
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Question
A firm in a competitive market has the following cost structure:
|
Output |
Total Cost |
|
0 |
$5 |
|
1 |
$10 |
|
2 |
$12 |
|
3 |
$15 |
|
4 |
$24 |
|
5 |
$40 |
This is a multiple-choice question, it asked 'If the market price is $4, what will this firm do?'. I answered 'It will shut down in the short run and exit in the long run.' but the correct answer is 'It will produce 3 units in the short run and exit in the long run.' I do not understand how they got that answer by looking at the cost structure.
Thank you for your time!
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