Jim and Lisa own a dog-grooming business in Champlain, New York, called JL Groomers. There are many buyers and many sellers in the dog-grooming service market. JL Groomers experiences normal cost curves, with the marginal cost (MC) curve crossing average variable cost (AVC) at $14 and average total cost (ATC) at $22.

JL Groomers will always shut down if the market price is:

A. above $14
B. $22
C. between $14 and $22
D. $14
E. below $14.

Question

30-04-2020
Business

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Jim and Lisa own a dog-grooming business in Champlain, New York, called JL Groomers. There are many buyers and many sellers in the dog-grooming service market. JL Groomers experiences normal cost curves, with the marginal cost (MC) curve crossing average variable cost (AVC) at $14 and average total cost (ATC) at $22.

JL Groomers will always shut down if the market price is:

A. above $14
B. $22
C. between $14 and $22
D. $14
E. below $14.

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amcool amcool · Answer 1 · 2020-05-04T15:54:24+02:00

Answer:

E. below $14.

Explanation:

The decision for a firm is to shut down when price lower than average variable cost.

Since firms maximizes profit when MC is equal to the market price (P), it implies that MC = P.

Since JL Groomers experiences normal cost curves, with the marginal cost (MC) curve crossing average variable cost (AVC) at $14, this implies that MC = P = AVC at this point.

By implication, JL Groomers will always shut down if the market price is below $14.