A firm sells 1000 units per week. It charges $70 per unit, the average variable costs are $25, and the average costs are $65. In the long run, the firm should a. Continue operating price is higher than average cost, its making a profit b. Shut down since price is greater than average cost c. Shut-down because it is cost effective to pay off the remaining fixed costs d. Continue operating as the firm is covering all the variable costs and some of the fixed costs

Question

Diego

Business

22 February, 15:03

A firm sells 1000 units per week. It charges $70 per unit, the average variable costs are $25, and the average costs are $65. In the long run, the firm should a. Continue operating price is higher than average cost, its making a profit b. Shut down since price is greater than average cost c. Shut-down because it is cost effective to pay off the remaining fixed costs d. Continue operating as the firm is covering all the variable costs and some of the fixed costs

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Answers (1)

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Gavyn Craig · Answer 1

a. Continue operating price is higher than average cost, its making a profit

Explanation:

In the long run, a company should only continue to operate if its price per unit is greater than total costs per unit.

In this case, total costs per unit are $65, while the selling price per unit is $70.

Since $70 > $65, then the company should continue operating since it is making a profit.

The answer is a. Continue operating price is higher than average cost, its making a profit.