The price for a pair of edible underpants is \$50. In the short-run, the firm should: 

• A. Shut down because price is less than average total cost.
• B. Shut down because it cannot make a profit.
• C. Produce one unit because, at this output, marginal revenue equals marginal cost.
• D. Produce four units because, at this output, the loss is minimized.

Answer: (D)

Verified step by step guidance

1. Calculate the Total Cost (TC) for each quantity by adding Total Fixed Costs (TFC) and Total Variable Costs (TVC). For example, at quantity 1, TC = TFC + TVC = 100 + 50 = 150.
2. Determine the Average Total Cost (ATC) for each quantity by dividing the Total Cost (TC) by the quantity. For example, at quantity 1, ATC = TC / Quantity = 150 / 1 = 150.
3. Calculate the Marginal Cost (MC) for each additional unit produced. This is the change in Total Cost when one more unit is produced. For example, MC from 0 to 1 unit = TC at 1 unit - TC at 0 units = 150 - 100 = 50.
4. Compare the price of \$50 to the Marginal Cost (MC) and Average Total Cost (ATC) at each quantity. The firm should produce where price equals MC and is greater than ATC to minimize losses.
5. Identify the quantity where the loss is minimized. This occurs where the price is equal to the Marginal Cost (MC) and the loss (difference between price and ATC) is the smallest. In this case, it is at quantity 4.