Bob is a general contractor in the construction industry. Suppose the construction industry is perfectly competitive. In the short run, assume the marginal cost of building new homes equals the market price of a new home when Bob builds 10 new homes. At this level of output, Bob's average fixed cost of building a new home is $210,000 and his average variable cost is $200,000 per home (so his average total cost is $410,000 per home). If new homes are selling for $190,000, should he continue to produce 10 new homes in the short run or shut down?

Bob is a general contractor in the construction industry. Suppose the construction industry is perfectly competitive. In the short run, assume the marginal cost of building new homes equals the market price of a new home when Bob builds 10 new homes. At this level of output, Bob's average fixed cost of building a new home is $210,000 and his average variable cost is $200,000 per home (so his average total cost is $410,000 per home). If new homes are selling for $190,000, should he continue to produce 10 new homes in the short run or shut down?

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter8: Perefect Competition

Section: Chapter Questions

Problem 5SQP

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