Explain the reason why a competitive firm should stop producing immediately if the price is lower than the average variable cost.
Consider the following table.
Quatitity Total cost
1 $10
2 12
3 16
4 22
5 30
6 40
7 52
8 66
(1) Calculate marginal cost for each quantity.
(2) Suppose that the price of the product is $10. How many units will the firm produce?
(3) In the long run, will the price rise or fall from the current level at $10? Explain the reason.