A firm sells 1,000 units per week. It charges $70 per unit, the average variable costs are $25, and the average costs are $65.1. What should the firm do in the short run? Why?2. What should the firm do in the long run? Why?3. At what price would the firm consider shutting down in the short run?4. At what price would the firm consider shutting down in the long run?

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Asked Nov 16, 2019
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A firm sells 1,000 units per week. It charges $70 per unit, the average variable costs are $25, and the average costs are $65.
1. What should the firm do in the short run? Why?
2. What should the firm do in the long run? Why?
3. At what price would the firm consider shutting down in the short run?
4. At what price would the firm consider shutting down in the long run?

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Expert Answer

Step 1

Following information is provided in the question:

Quantity sold per week – 1,000

Price - $70

AVC - $25

AC - $65

Step 2

1) In short run, a firm should operate if he covers all his average variable cost by charging price.

His AVC is $25 and he charges $70 which is greater than AVC ...

п 3 (Р-АС)x0
— (70-65) х1,000
$5,000
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п 3 (Р-АС)x0 — (70-65) х1,000 $5,000

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