When Fixed Costs Are High Relative to Variable Costs, Producers

question 115

Multiple Choice

When fixed costs are high relative to variable costs, producers will tend to

• A)continue producing in the short run even if they incur some losses.
• B)quickly shut down in the short run whenever they see losses.
• C)only produce in the short run as long as the product price is lower than their average variable costs.
• D)produce in the short run even if the product price is lower than their average fixed costs.

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Definitions:

Perfect Price Discrimination

A pricing strategy where a seller charges the highest price that each consumer is willing to pay, effectively capturing all consumer surplus as profit.

Producer Surplus

The difference between what producers are willing to accept for a good versus what they actually receive, a measure of producers' benefit.

Marginal Cost

The change in total cost that arises when the quantity produced is incremented by one unit, essentially the cost of producing one additional unit of a good or service.

Total Revenue

The total amount of money a firm receives from the sale of its goods and services, calculated as the price per unit times the number of units sold.