When it shuts down temporarily in the short run, a perfectly competitive firmMultiple choice question.avoids all costs.avoids its fixed costs.still incurs its total variable costs.still incurs its total fixed costs.
Question
When it shuts down temporarily in the short run, a perfectly competitive firmMultiple choice question.avoids all costs.avoids its fixed costs.still incurs its total variable costs.still incurs its total fixed costs.
Solution
The correct answer is: still incurs its total fixed costs.
Explanation: In the short run, a perfectly competitive firm that temporarily shuts down still has to pay its fixed costs. These are costs that do not change with the level of output, such as rent or salaries of permanent staff. These costs are incurred regardless of whether the firm is producing or not. Variable costs, on the other hand, are avoided when the firm is not producing.
Similar Questions
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A firm operates in a perfectly competitive market. The firm’s total cost of production is given by the following equation: TC(q) = 100 + 33q2 + 5q, where q is the quantity supplied. What is the shutdown point for this firm in the short run, or in other words, what is the market price below which a firm is better off not supplying any units in the short run? [Advice: draw AVC and MC]
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