If Market Price Is Greater Than the Minimum of AVC

question 89

Multiple Choice

If market price is greater than the minimum of AVC but below the minimum of AC, then

• A)the firm will shut down.
• B)revenue covers variable costs and some of the fixed costs and profit is positive.
• C)revenue covers variable costs and some of the fixed costs, although profit is negative.
• D)economic profit is zero.

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Definitions:

Deadweight Loss

The loss of total social surplus that occurs when the market outcome is not efficiently allocated, typically due to market failures or interventions.

Producer Surplus

Producer surplus is the difference between the amount producers are willing to accept for a good or service and the amount they actually receive, measured by the area above the supply curve and below the market price.

Market Demand

The total quantity of a good or service that all consumers in a market are willing and able to purchase at various prices.

Market Supply

The total quantity of a good or service available for purchase at any given price level in a given market.