Answer to Question #193515 in Microeconomics for Savana Cianci

Question

If the price (P) of maple syrup is $4.00 per can, average cost (AC) is $4.50 per can and average variable cost (AVC) is $3.00 per can, then to maximize profit or minimize loss the firm should:

Answer 1

The company should, continue production if the price is above the AVC since, if the price received for maple syrup is more than AVC then they are able to cover all variable cost and fixed costs thus maximize profit

The company should stop production for a short while when the price falls below the AVC since the price can not cover all variable cost and fixed costs thus minimizing loss.