In the Short Run, Why Would a Firm in a Perfectly

question 30

Multiple Choice

In the short run, why would a firm in a perfectly competitive market shut down production if the prevailing market price falls below the lowest possible average variable cost?

• A) At that point (economic) profit is zero.
• B) Below that point average revenue becomes less than marginal revenue.
• C) Below that point marginal revenue becomes insufficient to pay for avoidable average variable cost.
• D) Below that point other firms with similar cost will find it profitable to enter the market and take away demand from the existing firms.

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Definitions:

Supply Curve

A graphical representation showing the relationship between the price of a good and the quantity of the good suppliers are willing to sell.

Mass Transit

Public transportation systems that move large numbers of people within urban and suburban areas.

Price of Gasoline

The cost per unit volume of gasoline, typically measured in dollars per gallon or liters.

Equilibrium Price

The price at which the quantity of a product demanded by consumers and the quantity supplied by producers are equal.