Suppose That Price Is Below the Minimum Average Total Cost

question 239

Multiple Choice

Suppose that price is below the minimum average total cost (ATC) but above the minimum average variable cost (AVC) and that the market price is expected to rise at least to ATC in the near future. In the short run, a firm that is a price taker would

• A) immediately shut down and get out of the industry.
• B) continue to produce a quantity such that marginal revenue equals marginal cost.
• C) shut down temporarily, in hopes of restarting in the near future.
• D) cut price and expand output in hopes of achieving economies of scale

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Definitions:

Tax Breaks

Financial incentives or reductions in tax liabilities, intended to encourage certain activities or investments.

Wage Subsidies

Financial incentives provided by governments to employers to encourage the hiring of certain workers or to promote employment in specific sectors.

Government Failure

Government failure occurs when government intervention in the economy creates inefficiencies or leads to an allocation of resources that is worse than what the market would have produced on its own.

Public Goods

Goods that are non-excludable and non-rivalrous, meaning they can be consumed by everyone and one person's consumption doesn't reduce availability for others.