The Market Price Has Fallen Below a Firm's Average Total

question 27

Multiple Choice

The market price has fallen below a firm's average total costs, but is above the firm's average variable cost curve. In the short run, the firm:

• A)has greater marginal costs than marginal revenue.
• B)can minimize its losses by continuing to produce.
• C)is earning positive profits.
• D)is covering all of its fixed costs, but not all of its variable costs.

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Definitions:

Demand

The quantity of a good or service that consumers are willing and able to purchase at various prices, holding all else constant.

Cost Function

An equation that calculates the total cost incurred by a company to produce a specific quantity of a good or service.

Long-run Equilibrium

A market condition where all factors of production and inputs can be varied, allowing firms to enter or exit the market, ultimately resulting in no economic profit for any firm.

Demand

The amount of a product or service that buyers are ready and able to buy at different price levels over a certain timeframe.