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When price is below average variable cost a firm in a competitive market will group of answer choices?

A profit-maximizing firm decides to shut down in the short run when price is less than average variable cost. In the long run, a firm will exit a market when price is less than average total cost. 3.

What happens when price is less than average variable cost?

If price is less than average variable cost, a firm shuts down production in the short run, incurring an economic loss equal to total fixed cost. … The loss incurred is greater than fixed cost. The firm can incur a smaller loss by producing zero output and paying fixed cost.

Which of the following is true if price is below average variable cost for a firm in a competitive market?

Which of the following is true if price is below average variable cost for a firm in a competitive market? The firm should shut down and limit losses to fixed costs. You just studied 61 terms!

What happens when the market price is below the minimum of AVC in perfect competition?

If the MR of the product is less than the minimum average variable cost (min AVC), the firm will shut down because this action minimizes the firm’s loss. In this case, the firm’s economic loss equals its total fixed costs. If MR < min AVC, then each additional unit produced would increase the loss.

What happens when price is below average cost?

If the market price is below average cost at the profit-maximizing quantity of output, then the firm is making losses. If the market price is equal to average cost at the profit-maximizing level of output, then the firm is making zero profits.

When price falls below the minimum average variable cost?

If price is below the minimum average variable cost, the firm must shut down. In contrast, in scenario 3 the revenue that the center can earn is high enough that the losses diminish when it remains open, so the center should remain open in the short run.

When price is less than average variable cost at the profit-maximizing level of output a firm should?

20) When price is less than average variable cost at the profit-maximizing level of output, a firm should: A) continue to produce the level of output at which marginal revenue equals marginal cost if it is operating in the long run.

In which market structure does a firm have the least influence over the market price?

In which market structure does a firm have the LEAST influence over the market price? Perfect competition.

What is the meaning of average variable cost?

In economics, average variable cost (AVC) is a firm’s variable costs (labour, electricity, etc.) divided by the quantity of output produced. Variable costs are those costs which vary with the output level: where = variable cost, = average variable cost, and. = quantity of output produced.

Would a profit-maximizing firm continue to operate if the price in the market fell below its average cost of production provide a novel example and explain?

Answer: A profit-maximizing firm will continue to operate even if price falls below average cost, as long as price is above average variable cost.

When price is above total cost the firm incurs an economic profit?

Economic profit, TR – TC increases, reaches a maximum, and then decreases. At low output levels, the firm incurs an economic loss. When total revenue exceeds total cost, the firm earns an economic profit. Profit is maximized when the gap between total revenue and total cost is the largest, at 10 cans per day.

At what minimum price will the firm produce a positive output?

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At what minimum price will the firm produce a positive output? greater than 0. This means that the firm produces in the short run as long as price is positive.

Would a profit maximizing firm continue to operate if the price in the market fell below?

Question: Would a profit maximizing firm continue to operate if the price in the market fell below its average cost of production in the short run? A. No, a firm should never produce if its price falls below average total cost.

Does fixed cost affect profit maximizing quantity?

A one-time change in the size of the fixed cost does not affect any part of the profit maximization condition (MR=MC). Therefore, the optimal output will remain the same. On the other hand, Total Profit = TR – TC = P · Q – TC. An increase in fixed cost will increase total cost, so the profit will decrease.

When a firm is experiencing economies of scale it will?

Economies of scale are cost advantages companies experience when production becomes efficient, as costs can be spread over a larger amount of goods. A business’s size is related to whether it can achieve an economy of scale—larger companies will have more cost savings and higher production levels.

Why must price cover average variable costs if the firm is to continue operating if price is less than average variable costs?

Why must price cover average variable costs if the firm is to continue operating? If price is less than average variable costs, the firm can continue to operate because losses will be covered. Price does not have to cover average variable costs; it only has to cover average fixed costs.

When should a firm shut down in the long run?

A shutdown point is typically a short-run position; however, in the long run, the firm should shut down and leave the industry if its product price is less than its average total cost. Therefore, there are two shutdown points for a firm – in the short run and the long run.

When should a firm shut down in the short-run?

In the short run, a firm that is operating at a loss (where the revenue is less that the total cost or the price is less than the unit cost) must decide to operate or temporarily shutdown. The shutdown rule states that “in the short run a firm should continue to operate if price exceeds average variable costs. ”

How does the average cost curve help to show whether a firm is making profits or losses?

How does the average cost curve help to show whether a firm is making profits or losses? If the average cost curve is below the marginal revenue curve, or the price, at the selected level of outout, the firm will make profits. … The firm should shut down only if its revenues are not able to cover its variable costs.

Under what conditions will a firm shut down temporarily explain?

In the short run, when a firm cannot recover its fixed costs, the firm will choose to shut down temporarily if the price of the good is less than average variable cost. In the long run, when the firm can recover both fixed and variable costs, it will choose to exit if the price is less than average total cost.

At what price level must the firm shut down in the short run?

A business needs to make at least normal profit in the long run to justify remaining in an industry but in the short run a firm will continue to produce as long as total revenue covers total variable costs or price per unit > or equal to average variable cost (AR = AVC). This is called the short-run shutdown price.

When the marginal cost falls below the average cost the cost should be decreasing?

When marginal cost is less than average variable or average total cost, AVC or ATC must be decreasing. When marginal cost is greater than average variable or average total cost, AVC or ATC must be increasing.