Assume that the market for cardboard is perfectly competitive (if not very exciting). In each of the following scenarios, should a typical firm continue to produce or should it shut down in the short run? Draw a diagram that illustrates the firm’s situation in each case.
a. Minimum ATC = $2.00
Minimum AVC = $1.50
Market price = $1.75
b. MR = $1.00
Minimum AVC = $1.50
Minimum ATC = $2.00
