Question

a firm in a competitive market.

Mrs. Smith is operating a firm in a competitive market. The market price is $6.50. At her profit maximizing level ofoutput, her average total cost ofproduction is $7.00 and heraverage variable cost of production is $6.00.a. Mrs Smith is earning a loss anshould shut downin the shortrunb. Mrs Smith is earning a loss but should continue to operatein the short run.c.Mrs Smith is earning a profit, since the price is above theaverage variable cost.d.Whithout knowing Mrs smith's marginal costk, we cannotdetermine whether she should stay in business or shut down.

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