If Price Is Less Than Average Variable Cost at the Profit-Maximizing

question 227

Multiple Choice

If price is less than average variable cost at the profit-maximizing quantity of output 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.

Comprehend the principles of supply and demand in determining wages and prices in competitive markets.

Grasp the economic rationale behind hiring or using more or less of a factor of production based on its MRP versus its cost.

Recognize the role of elasticity in supply and demand in determining the allocation and pricing of resources.

Understand the concept of pure rent and its relationship to factors of production in fixed supply.

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