If the Price Is Greater Than the Average Variable Cost

question 144

Multiple Choice

If the price is greater than the average variable cost the firm should produce

• A)The loss the firm makes from shutting down (its TFC)is less than the loss they make as a result of producing.
• B)The loss the firm makes from shutting down (its TFC)is greater than the loss they make as a result of producing.
• C)Where MC=MR.
• D)Where AVC is minimized.

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Definitions:

Perfectly Competitive Firm

A firm that operates in a market where there are many buyers and sellers, the products are homogeneous, and no single buyer or seller can influence the market price.

Marginal Revenue

The additional income generated from selling one more unit of a product is known as marginal revenue.

Marginal Cost

The financial impact of producing an extra unit of a product or service.

Perfectly Competitive Firms

Firms that operate in a market where no single buyer or seller has the power to influence the price of the product, and where the product offered is homogeneous, with many sellers and buyers.