Zoe,the owner of Zoe's Bakery,determines that,at her optimal level of production in the short run,P < ATC and P > AVC.In the short run,Zoe should:

A) continue to operate,even though she is taking an economic loss.
B) continue to operate,as she is making an economic profit.
C) shut down immediately,as she is taking an economic loss.
D) raise the price until she has maximized her profits.

Question

Adriana Reyes · Accepted Answer

Final Answer : A, Explanation :  In the short run, if P AVC, it means that the bakery is still covering its variable costs of production. Therefore, it is best for Zoe to continue to operate in the short run, even though she is taking an economic loss. This is because shutting down immediately would result in higher losses than continuing to operate.

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