Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![**Question 8**
**7.3.2 According to the figure below, a firm would shut down in the short run if the price is**
[Graph Explanation]
The graph includes three curves labeled as MC (Marginal Cost), ATC (Average Total Cost), and AVC (Average Variable Cost) plotted against Quantity on the x-axis and Price/Cost on the y-axis. Two horizontal lines are drawn at price levels $5 and $4.
- The MC curve is upward sloping, indicating increasing marginal costs with quantity.
- The ATC curve is above the AVC curve, both showing a typical U-shape, with the ATC curve being higher than the AVC.
- The horizontal line at $5 intersects above the AVC curve.
- The horizontal line at $4 intersects at a point that appears below the AVC curve.
From the graph, a firm should shut down if the market price falls below the AVC curve, which aligns with the $4 price level.
**Options:**
- anywhere below $5.
- below $5 but above $4.
- below $4.
- above $5.
The correct answer is likely **below $4**, as the firm would shut down in the short run if the price is below the average variable costs.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F4643a986-f129-4320-b158-49e5c6d0d933%2Fdc4c1d2c-f2fb-415c-9ff0-9700002b0fd4%2Fofctmkp.jpeg&w=3840&q=75)
Transcribed Image Text:**Question 8**
**7.3.2 According to the figure below, a firm would shut down in the short run if the price is**
[Graph Explanation]
The graph includes three curves labeled as MC (Marginal Cost), ATC (Average Total Cost), and AVC (Average Variable Cost) plotted against Quantity on the x-axis and Price/Cost on the y-axis. Two horizontal lines are drawn at price levels $5 and $4.
- The MC curve is upward sloping, indicating increasing marginal costs with quantity.
- The ATC curve is above the AVC curve, both showing a typical U-shape, with the ATC curve being higher than the AVC.
- The horizontal line at $5 intersects above the AVC curve.
- The horizontal line at $4 intersects at a point that appears below the AVC curve.
From the graph, a firm should shut down if the market price falls below the AVC curve, which aligns with the $4 price level.
**Options:**
- anywhere below $5.
- below $5 but above $4.
- below $4.
- above $5.
The correct answer is likely **below $4**, as the firm would shut down in the short run if the price is below the average variable costs.
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