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?
A) Yes, it should continue to produce because its price exceeds its average fixed cost.
B) No, it should shut down because it is making a loss.
C) Yes, it should continue to produce because it is minimizing its loss.
D) There is insufficient information to answer the question.
Question 2
If a firm has excess capacity, it means
A) that the firm's long-run average cost of producing a given quantity exceeds its short-run cost of producing that same quantity.
B) that the firm's quantity supplied exceeds its quantity demanded.
C) that the firm expends too much of its resources on advertising its product without seeing an appreciable increase in sales.
D) that the firm is not producing its minimum efficient scale of output.
A, Unequal pupils; B, dilated, fixed pupils.
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Competitive firms and maximization