If the Market Price Drops Below a Firm's Average Variable

question 161

Multiple Choice

If the market price drops below a firm's average variable costs at its profit-maximizing level of output:

• A)the firm should shut down immediately.
• B)the loss-minimizing quantity of output is zero.
• C)the firm is not earning enough revenue to cover the variable costs of production.
• D)All of these are correct.

---

Definitions:

Cost Of Goods Sold

The direct costs attributable to the production of the goods sold by a company. This includes both the materials and labor costs.

General/Administrative Expenses

Overhead or operational costs not directly tied to producing goods or services, such as salaries of administrative staff.

Full-Capacity Level

The maximum level of output that a company can sustain over a period of time without incurring additional costs.

Balance Sheet

A financial statement showing a company's assets, liabilities, and shareholders' equity at a specific point in time.