The average cost of production at the profit maximizing output level for Jones Inc, is $4 per unit. The average variable cost of production is $3.5 per unit at this output level. The introduction of cheaper substitutes reduces the demand drastically and the market price falls to $1.5 per unit. If the minimum average variable cost the firm must incur is $2.5, identify the correct statement from
the following.
a. There are output levels where revenue exceeds variable cost when the price is $1.5 per unit.
b. The firm will continue to operate in the short run.
c. The firm will breakeven at the price of $1.5 per unit.
d. The firm will shut down.
D
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According to this Application, in Peru, producing palm oil is very profitable but is a time consuming process. Producing coca paste, an ingredient in cocaine, is not as costly or as time consuming as the production of palm oil
To switch Peruvian farmers from producing an ingredient used for cocaine to producing the profitable and safe palm oil would require A) improvements in finance and the ability to borrow funds. B) informal ownership of property. C) governmental approval. D) cocaine being declared illegal in Peru.
If the price of a product is above equilibrium, what forces it down?
What will be an ideal response?