If a Competitive Firm Finds That It Maximizes Short-Run Profits

question 3

Multiple Choice

If a competitive firm finds that it maximizes short-run profits by shutting down,which of the following must be TRUE?

• A) p < AVC for all levels of output.
• B) p < AVC only for the level of output at which p = MC.
• C) p < AVC only if the firm has no fixed costs.
• D) The firm will earn zero profit.

---

Definitions:

Absolute Advantage

The ability of a country or firm to produce a greater quantity of a good, product, or service than competitors, using the same amount of resources.

Production Costs

The total expense incurred in manufacturing a product or providing a service, including materials, labor, and overhead.

Comparative Advantage

Comparative advantage is the economic principle that a country should specialize in producing and exporting goods in which it has the lowest opportunity cost compared to others.

Specialization

Specialization refers to the process of focusing on a specific area of expertise, skill, or production, often leading to increased efficiency and quality.