The owner of Tie-Dyed T-shirts, a perfectly competitive firm, hires you to give him economic advice. He tells you that the market price for his shirts is $15 and that he is currently producing 200 shirts at an AVC of $10 and an ATC of $20. What would you recommend that he do?
A. Continue to produce in the short run, even though he is earning a loss, and expand production in the future hoping to increase market share and total revenue.
B. Shut down in the short run, as he is incurring a loss, and leave the industry in the long run, if there are no changes in economic conditions.
C. Continue producing in the short run, as his loss from production is less than his fixed costs, but exit the industry in the long run if there are no changes in economic conditions.
D. Tell him that you cannot make any recommendations until you know what his fixed costs are.
Answer: C
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Indicate whether the statement is true or false
A firm with market power faces the following estimated demand and average variable cost functions:Qd = 39,000 - 500P + 0.4M - 8,000PRAVC = 30 - 0.005Q + 0.0000005Q2where Qd is quantity demanded, P is price, M is income, and PR is the price of a related good. The firm expects income to be $40,000 and PR to be $2. Total fixed cost is $100,000. The firm should ________ because ________.
A. operate, P = $60.50 > AVC = $25.50 B. operate, P = $62 > AVC = $22 C. shut down, P = $62 < TVC = $229.50 D. operate, P = $62 > AVC = $17.50
Which one of the following industries is best classified as an oligopoly?
A. wheat farms in the United States B. textbook publishers C. retailing D. fast food restaurants