Anka runs a water sports service in a perfectly competitive beach town. The price she is able to charge for her services varies from day to day, but she has no control over that price. Her cost and revenue curves for a perfectly competitive industry are shown in this graph:

What is the lowest price at which Anka would be willing to produce in the short run?

Choose 1 answer:
(A) $\$ 140$
(B) $\$ 40$
(C) $\$ 147$
(D) $\$ 90$
(E) $\$ 55$
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Question

Anka runs a water sports service in a perfectly competitive beach town. The price she is able to charge for her services varies from day to day, but she has no control over that price. Her cost and revenue curves for a perfectly competitive industry are shown in this graph:

What is the lowest price at which Anka would be willing to produce in the short run?

Choose 1 answer:
(A) $\$ 140$
(B) $\$ 40$
(C) $\$ 147$
(D) $\$ 90$
(E) $\$ 55$
Report a problem

Accepted Answer

∻Solution∻ ‖ a ⋮ Definition of Short-Run Production Decision: In the short run, a firm will continue to produce as long as the price covers the average variable cost (AVC). This is because, in the short run, the firm must cover its variable costs to avoid losses greater than its fixed costs. ‖ ‖ b ⋮ Identifying the Minimum AVC: From the graph, the minimum point on the AVC curve is at $40. This is the lowest price at which Anka would be willing to produce in the short run. ‖ ∻Answer∻ ⚹ $40 ⚹ ∻Key Concept∻ ⚹ Short-Run Production Decision ⚹ ∻Explanation∻ ⚹ In the short run, a firm will produce as long as the price is at least equal to the minimum average variable cost (AVC). In this case, the minimum AVC is $40, so Anka would be willing to produce at any price above or equal to $40. ⚹◊What is the relationship between Anka's marginal cost and average total cost at the point where they intersect on the graph?⍭ Generate me a similar question◊

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