A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000. The fixed cost of production is $20,000. The price of each good is $10. Should the firm continue to produce in the short run?

Question

Business

Jonathon Cochran

19 May, 07:50

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000. The fixed cost of production is $20,000. The price of each good is $10. Should the firm continue to produce in the short run?

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Answers (1)

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Deven Cline · Answer 1

Answer: Yes, the firm should continue to produce in the short run as its revenues cover all of its total variable cost of $16,000.

Explanation:

Given that,

Produces = 3,000 units

Total cost = $36,000

Fixed cost of production = $20,000

price of each good = $10

Total cost = Total fixed cost + total variable cost

$36,000 = $20,000 + Total variable cost

Total variable cost = $36,000 - $20,000

= $16,000

Revenues = 3,000 units * price of each good

= 3,000 * $10

= $30,000

Yes, the firm should continue to produce in the short run as its revenues cover all of its total variable cost of $16,000.