If a Firm's Demand Curve Falls Below Its AVC Curve

question 65

Multiple Choice

If a firm's demand curve falls below its AVC curve, then the firm should

• A)Shut down now
• B)Operate in the short run but not the long run
• C)Set price = marginal cost
• D)Shutdown in the long-run

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Definitions:

Price Elasticity

An indicator of the sensitivity of consumer demand for a product to variations in its price, reflecting how significantly the amount of the product consumers want to buy alters with price adjustments.

Raise Profits

Strategies or actions undertaken by a firm to increase the difference between its total revenues and total costs.

Two-part Tariff

A pricing strategy that consists of two parts: a fixed fee plus a variable charge based on the quantity of the product or service used.

Marginal Cost

The rise in expenditure from the production of a supplementary unit of a product or service.