The figure below represents the cost curves of a perfectly competitive firm, where SMC = short run marginal cost, SATC = short run average total cost and SAVC = short run average variable cost. Price, cost PA aaa O a. the points between AD. O b. the points between AC. O c. O d. the SMC curve. the SMC curve above A. D SMC Q₁ Q₂ Q3 Output The short run supply curve is represented by: SATC SAVC

In a perfectly competitive market there is a donut shop that sells 1,200 donuts daily. Each donut sells for the market price of $0.75 and they sell out every day. Assume that this company has labor costs of $275 and materials costs of $400.   a. At what price would this donut shop shutdown in the short run?   b. Using only variable costs, what is the donut shop’s daily profit?   - Now assume that the owner is thinking of adding a second location downtown. The capital investment required is $4,000. The normal rate of return is 5%.   c. If the new shop could operate under the same conditions as the original location is it a good business decision to expand?

What will happen when variable costs rise in a perfectly competitive industry? Selected answer will be automatically saved. For keyboard navigation, press up/down arrow keys to select an answer. a b C Question 5 d The number of firms will eventually increase, but the existing firms will cut back production in the short run. The number of firms will eventually decrease and the existing firms will cut back production in the short run. The number of firms will eventually decrease, but the existing firms will expand production in the short run. The number of firms will eventually increase and the existing firms will expand production in the short run. B

Is my answer correct?   i think you need information about the AVC to answer this question. I know the firm is productive at a loss, but in order to decide whether or not the firm should shut down, you have to know whether or not price is above or below AVC, right?