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6 October, 17:45

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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  1. 6 October, 17:51
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    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.
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