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Free worksheet · AP Microeconomics Unit 3

A loss. Keep producing, or shut down?

Give students a competitive firm, three cost curves and a decision to defend. This one-page practice asks them to find output, shade the loss and explain the short-run choice.

Download the free worksheet Try the problem

One-page PDF. No account or email required. Worked answer below.

The one-page student worksheet: MC, ATC and AVC curves, a graph-completion task and a competitive-firm application question.
Actual practice page from Unit 3, Lesson 6.

Decide before you reveal

A kale farmer faces a market price of $8.

The market is perfectly competitive. At 70 bunches, marginal cost is $8, average variable cost is $7.50 and average total cost is $9.

Make the case

  1. Draw the firm's horizontal demand and marginal revenue line at $8.
  2. Mark the profit-maximizing quantity on the rising part of MC.
  3. Calculate total economic profit or loss. Shade it on the graph.
  4. Choose: produce or shut down in the short run? Defend your choice using AVC.

Before comparing answers, ask a partner: which cost can the farmer avoid by shutting down?

At 70 bunches

Price = marginal revenue
$8.00
Marginal cost
$8.00
Average variable cost
$7.50
Average total cost
$9.00

All values are per bunch. Total fixed cost is $105.

Reveal the worked answer

Produce 70 bunches and accept the $70 loss.

At 70, the horizontal MR line meets the rising MC curve. That is the relevant profit-maximizing intersection.

Profit = (price − ATC) × quantity = ($8 − $9) × 70 = −$70.

The firm covers its variable cost because $8 is above AVC of $7.50 at this output. Revenue of $560 pays $525 of variable cost and contributes $35 toward the $105 fixed cost.

Shutting down would leave the whole $105 fixed cost unpaid. Producing reduces the loss to $70.

Check the distinction: a loss means price is below ATC. Shutdown depends on whether price covers variable cost. In this short-run model, the shutdown threshold is minimum AVC; at exactly that price, producing and shutting down give the same loss.

Worked graph with price and MR at $8, output 70, ATC $9 and AVC $7.50. The shaded loss rectangle has height $1 and width 70, giving a $70 loss.
MC crosses each average-cost curve at its own minimum.

Use it in your next lesson

A short practice with a useful disagreement.

Ask students to choose first, sketch independently, then compare their cost-based explanations. Reveal the worked answer after they have defended a choice. The most useful discussion is often why a firm can rationally keep producing while making a loss.

The PDF is a one-page excerpt from the student handout. It includes the cost curves, graph-completion directions and application question. It does not include the complete teaching deck or the rest of the unit.

See where this task fits in the ten-lesson Unit 3 teaching sequence, with pacing examples and a misconception guide.

Continue with the complete unit

Production, Cost & Perfect Competition

Ten lessons take students from marginal product and production costs to profit maximization, entry and exit, surplus, and market-and-firm graph practice.

Each lesson includes PDF slides, a student handout, an answer key, a lesson plan and an editable PowerPoint deck.

View the Unit 3 listing

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