If the Price Is Less Than the Average Variable Cost

question 282

Multiple Choice

If the price is less than the average variable cost at the quantity of output where MR = MC,in the short run a perfectly competitive firm will:

• A)produce at a loss.
• B)produce at a profit.
• C)shut down production.
• D)produce more than the profit-maximizing quantity.

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Definitions:

Cournot Solution

The Cournot Solution is an equilibrium concept in oligopoly theory where firms choose their output levels simultaneously and each firm's decision is based on the output levels of its competitors.

Stackelberg Model

A strategic game in economics where one firm, the leader, sets its output level first, and then the follower firms set their output levels, taking the leader's output as given.

Oligopoly Model

An economic model that describes a market structure in which a few firms dominate the industry and have the ability to influence prices and market outcomes.

Competitive Market

A market structure in which many firms offer products or services that are similar, leading to high levels of competition.