When Acme Dynamite produces 250 units of output, its variable cost is $2,000, and its fixed cost is $500. It sells each unit of output for $25. If the price of dynamite drops to $10, should Acme Dynamite continue to operate in the short run?

The firm will continue to produce in the short run.

Explanation:

Given the number of units produced by Acme Dynamite = 250 units.

The variable cost of producing the 250 units = $2000

The fixed cost = $500

The selling price = $25 per unit.

The new price after the fall in price = $10

Total revenue from the selling of 250 units = 250 × 10 = $2500

Since the revenue received is covering the variable cost and fixed cost. Thus, the firm will produce or continue to produce in the short run.

a.