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A firm has been operating in the market for a long time. Its profits have been falling considerably. The producer is not able to decide whether to continue with the operation or exit the industry. As a student of economics, suggest him the way.

Answer» <html><body><p></p>Solution :It is clear from the question that the price charged by the <a href="https://interviewquestions.tuteehub.com/tag/firm-989667" style="font-weight:bold;" target="_blank" title="Click to know more about FIRM">FIRM</a> is <a href="https://interviewquestions.tuteehub.com/tag/less-1071906" style="font-weight:bold;" target="_blank" title="Click to know more about LESS">LESS</a> than the average cost incurred by it. The firm hasto <a href="https://interviewquestions.tuteehub.com/tag/ensure-972238" style="font-weight:bold;" target="_blank" title="Click to know more about ENSURE">ENSURE</a> the following and accordingly the decision to leave or <a href="https://interviewquestions.tuteehub.com/tag/stay-1226662" style="font-weight:bold;" target="_blank" title="Click to know more about STAY">STAY</a> in the operation can be taken <br/> (i) If the firm is able to recover average variable cost <a href="https://interviewquestions.tuteehub.com/tag/fully-2663010" style="font-weight:bold;" target="_blank" title="Click to know more about FULLY">FULLY</a> and average fixed cost partially, then it may stay in the business and review its plans and policiesto reduce the losses. <br/> (ii) If average variable cost is recovered and average fixed cost is not at all recovered, the firm should close down its operation. It is a shut down point for the firm.</body></html>


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