Understanding JL Groomers' Cost Curves in the Dog-Grooming Service Market

Jim and Lisa's Dog-Grooming Business

Jim and Lisa own a dog-grooming business in Champlain, New York, called JL Groomers. In the competitive dog-grooming service market, there are numerous buyers and sellers vying for their share of the market.

Cost Curves of JL Groomers

JL Groomers experiences normal cost curves in their operations. The marginal cost (MC) curve intersects the average variable cost (AVC) curve at $14 and the average total cost (ATC) curve at $22.

Shutting Down Decision

JL Groomers will always shut down if the market price falls below a certain threshold. The options for this threshold are:

A. above $14

B. $22

C. between $14 and $22

D. $14

E. below $14

Question:

At what market price will JL Groomers shut down?

Answer:

E. below $14.

Explanation:

The decision for a firm to shut down occurs when the market price is lower than the average variable cost. Since firms maximize profit when the marginal cost (MC) is equal to the market price (P), it implies that MC = P.

Given that the MC curve of JL Groomers intersects the AVC curve at $14, this means that MC = P = AVC at this point. Therefore, JL Groomers will always shut down if the market price falls below $14.