Question

5. Amy lower her price to attract even more business. Should Amy follow Bill's suggestion, or should she even consider raising her price? 6. Even if a firm is optimistic about the future, why should it shut down if it cannot cover its are there ramifications not mentioned in the textbook? hun

Answer 1

Both questions are only partially visible. So I am guessing the answer of 6th question.

The intersection of the average variable cost curve and the marginal cost curve, which shows the price below which the firm would lack enough revenue to cover its variable costs, is called the shutdown point. If the perfectly competitive firm faces a market price above the shutdown point, then the firm is at least covering its average variable costs. At a price above the shutdown point, the firm is also making enough revenue to cover at least a portion of fixed costs, so it should limp ahead even if it is making losses in the short run, since at least those losses will be smaller than if the firm shuts down immediately and incurs a loss equal to total fixed costs. However, if the firm is receiving a price below the price at the shutdown point, then the firm is not even covering its variable costs. In this case, staying open is making the firm’s losses larger, and it should shut down immediately. To summarize, if:

price < minimum average variable cost, then firm shuts down

price > minimum average variable cost, then firm stays in business

If you still have doubt. Please repost the question, because I cannot comment back.