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8 February, 12:22

Mrs. Smith operates a business in a competitive market. The current market price is $8.10. 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

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  1. 8 February, 15:27
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    Mrs Smith either shut down the business or invest in efficient equipements that lowers the total cost to below $7

    Explanation:

    The reason is that the you can not make profit if you product is sold in the market at a higher price than the competitor who offers the same product with the same features. So here, Smith can not make profits by selling the product at $8 because here total cost is $8.25 per unit.

    So either she should invest in the business equipments which bring efficiencies and keeps the total costs to below $7 or she should shut down her business because the business is turned into loss making machine.
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