Question

The equilibrium price of a guidebook is $25 in the perfectly competitive guidebook industry. Our firm produces 8,000 guidebooks for an average total cost of $28, marginal cost of $30, and average variable cost of $20. Our firm should:

Answer 1

Resuming:

The company should keep open.

It should decrease their production to lower their cost

Step-by-step explanation:

The company should decrease their production, because is working on a sub-optimal capacity.

The current price is 25 and our variable cost are 20

This means the company is covering all the variable cost.

The company is above the shutdown point.

However because the average total cost is 28

It is neither on break-even or profit zone.

The business should reduce the variable cost in the short-term

and focus in reduce the fixed cost in the long-term