of 65 packs of raspberries, and it will make losses of $47.45 (as explained earlier). The alternative would be to

shut down and lose all the fixed costs of $62.00. Since losing $47.45 is preferable to losing $62.00, the profit

maximizing (or in this case the loss minimizing) choice is to stay in operation. The key reason is because price

is above average variable cost. This means that at the current price the farm can pay all its variable costs, and

have some revenue left over to pay some of the fixed costs. So the loss represents the part of the fixed costs the

farm can’t pay, which is less than the entire fixed costs. However, if the price declined to $1.50 per pack, as

Figure 8.6 (b) shows, and if the firm applied its rule of producing where P = MR = MC, it would produce a

quantity of 60. This price is below average variable cost for this level of output. If the farmer cannot pay
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