If the Price of Its Product Falls Below the Minimum

question 344

Multiple Choice

If the price of its product falls below the minimum point on the AVC curve, the best a perfectly competitive firm can do is to

• A) keep producing and incur an economic loss equal to its total variable cost.
• B) keep producing and incur an economic loss equal to its total fixed cost.
• C) shut down and incur an economic loss equal to its total variable cost.
• D) shut down and incur an economic loss equal to its total fixed cost.

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Definitions:

Direct Labour Budget

A budget that forecasts the expense of direct labor needed to achieve manufacturing targets.

Labour Rate

The standard or actual cost paid per hour of labor, used in calculating the total cost of production or services.

Raw Materials

Materials that are used to make a product.

Budgeted Production

The planned quantity of goods or services that a company aims to produce over a certain period, often based on forecasted demand.