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A firm in a competitive market has a minimum average variable cost equal to $100 and...

A firm in a competitive market has a minimum average variable cost equal to $100 and produces 400 units of a good. If the market demand and supply determine an equilibrium price of the good at $300 per unit. Should the firm maintain or modify its production volume? Why?

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If a firm in a competitive market has a minimum AVC equal to $100 and produces 400 units of a good. Also if he market demand and supply determine an equilibrium price of the good at $300 per unit, the firm should keep producing, rather increase the production and remain in the market. The firm should always remain in the market till the equilibrium price is greater than minimum of average variable cost of production. When the price is greater than minimum of average variable cost, this would imply that the firm is earning enough revenues to cover its variable cost at least. If the firm able to earn enough revenues to cover variable cost it should remain in the competition.

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