Table of contents

0. Basic Principles of Economics1h 5m
1. Reading and Understanding Graphs59m
2. Introductory Economic Models1h 10m
3. The Market Forces of Supply and Demand2h 26m
4. Elasticity2h 26m
5. Consumer and Producer Surplus; Price Ceilings and Floors3h 45m
6. Introduction to Taxes and Subsidies1h 46m
7. Externalities1h 12m
8. The Types of Goods1h 13m
9. International Trade1h 16m
10. The Costs of Production2h 35m
11. Perfect Competition2h 23m
12. Monopoly2h 13m
13. Monopolistic Competition1h 9m
14. Oligopoly1h 26m
15. Markets for the Factors of Production1h 26m
16. Income Inequality and Poverty35m
17. Asymmetric Information, Voting, and Public Choice39m
18. Consumer Choice and Behavioral Economics1h 16m

11. Perfect Competition

Short Run Shutdown Decision

Microeconomics

11. Perfect Competition

Short Run Shutdown Decision

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Multiple Choice

The price for a pair of edible underpants is $50. In the short-run, the firm should:

Shut down because price is less than average total cost.

Shut down because it cannot make a profit.

Produce one unit because, at this output, marginal revenue equals marginal cost.

Produce four units because, at this output, the loss is minimized.

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Verified step by step guidance

Calculate the Total Cost (TC) for each quantity by adding Total Fixed Costs (TFC) and Total Variable Costs (TVC). For example, at quantity 1, TC = TFC + TVC = 100 + 50 = 150.

Determine the Average Total Cost (ATC) for each quantity by dividing the Total Cost (TC) by the quantity. For example, at quantity 1, ATC = TC / Quantity = 150 / 1 = 150.

Calculate the Marginal Cost (MC) for each additional unit produced. This is the change in Total Cost when one more unit is produced. For example, MC from 0 to 1 unit = TC at 1 unit - TC at 0 units = 150 - 100 = 50.

Compare the price of $50 to the Marginal Cost (MC) and Average Total Cost (ATC) at each quantity. The firm should produce where price equals MC and is greater than ATC to minimize losses.

Identify the quantity where the loss is minimized. This occurs where the price is equal to the Marginal Cost (MC) and the loss (difference between price and ATC) is the smallest. In this case, it is at quantity 4.