By Shutting Down When Price Is Less Than Average Variable

question 6

Multiple Choice

By shutting down when price is less than average variable cost at the profit-maximizing level of output,a perfectly competitive firm will limit its losses to its:

• A)total variable costs.
• B)total costs.
• C)total fixed costs.
• D)marginal costs.

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Definitions:

Shut Down

This term refers to a short-term decision made by a firm to cease operations when the market price falls below the minimum average variable cost.

Scale of Production

Refers to the level at which production activities are aggregated or expanded, affecting the unit costs and capability of the production process.

Lower

To decrease in position, value, or condition.

Average Total Cost

The total cost of production divided by the number of units produced, encompassing both fixed and variable costs.