A Firm Realizes That the Market Price Has Fallen Below

question 18

Multiple Choice

A firm realizes that the market price has fallen below its average total costs,and it is now earning a loss.What is the best action for the firm to take in the short run?

• A) Stay open if price is greater than average variable costs.
• B) Shut down immediately and pay fixed costs only.
• C) Stay open if total revenue is greater than fixed costs.
• D) Shut down if price is greater than average variable costs.

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Definitions:

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A measure used in statistics that quantifies how much observed counts diverge from expected counts.

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A default hypothesis that there is no effect or no difference, and it is tested against an alternative hypothesis.

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