Firms' Short and Long-Run Decisions Practice Test

A perfectly competitive firm faces a market price of $P=\$10$ per unit. At the firm’s profit-maximizing quantity, $AVC=$12$ and $ATC=\$16$. Based on the firm’s cost and price information, should the firm produce or shut down in the short run?

Based on the firm’s cost and price information, should the firm produce or shut down in the short run? Assume the firm is a price taker in a perfectly competitive market and is currently producing the profit-maximizing quantity where $P=MC$.

At the profit-maximizing quantity: market price $P=$ $11$ dollars per unit, $AVC=$ $8$ dollars per unit, and $ATC=$ $12$ dollars per unit.