Question 14Ma owns a pizza shop with AVC = $70 and ATC = $98. It is a competitive market and the market price for pizza is $95. Mr. Ma shouldA: exit the market in both the short-run and long-run.B: continue his business in both the short-run and long-run.C: continue his business in the short-run but exit in the long-run if the situation continues.D: shut down his business in the short-run but continue in the long-run if the situation continues.

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Asked Dec 17, 2019
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Question 14

Ma owns a pizza shop with AVC = $70 and ATC = $98. It is a competitive market and the market price for pizza is $95. Mr. Ma should

A: exit the market in both the short-run and long-run.

B: continue his business in both the short-run and long-run.

C: continue his business in the short-run but exit in the long-run if the situation continues.

D: shut down his business in the short-run but continue in the long-run if the situation continues.

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Expert Answer

Step 1

The profit is the excess revenue made by the firm after deducting the total cost of production from the total revenue from the sake of goods and services in the market. When the excess revenue after deducting the total cost is positive, it means that the firm is earning positive economic profit and when the excess revenue turns out to be a negative value, it indicates that the firm earns economic losses.

Step 2

The average variable cost is the variable cost incurred by the firm in producing each unit of output in the market. The average variable cost in the economy is given to be $70 and the price is $95. This means that the price...

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