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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