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Mrs. Smith operates a business in a competitive market. The current market price is $7.50. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should __________.
a. shut down her business in the short run but continue to operate in the long run.
b. continue to operate in the short run but shut down in the long run.
c. continue to operate in both the short run and long run.
d. shut down in both the short run and long run.

Respuesta :

Answer:

The correct answer is D

Explanation:

Mrs Smith is the one who is operating a business and its current market value is $7.50 but the profit maximizing level of production, where the average variable cost is $8.00 and the total cost is $8.25.

So, Mrs Smith should shut down the business in both the situation which is short run as well as long run because the cost both total as well as variable cost is more than the present market value which will incurr loss for the business.

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