If a competitive firm finds that it maximizes short-run profits by shutting down, which of the following must be TRUE? A)p < AVC for all levels of output. B)The firm will earn zero profit. C)p < AVC only if the firm has no fixed costs. D)p < AVC only for the level of output at which p = MC.

If a competitive firm finds that it maximizes short-run profits by shutting down, which of the following must be TRUE? A)p < AVC for all levels of output. B)The firm will earn zero profit. C)p < AVC only if the firm has no fixed costs. D)p < AVC only for the level of output at which p = MC.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter9: Market Structure And Long-run Equilibrium

Section: Chapter Questions

Problem 1MC

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Question

If a competitive firm finds that it maximizes short-run profits by shutting down, which of the following must be TRUE?

A)p < AVC for all levels of output.

B)The firm will earn zero profit.

C)p < AVC only if the firm has no fixed costs.

D)p < AVC only for the level of output at which p = MC.

Definition Definition Measure of the cost of production per unit of output, including only variable costs such as wages, materials, and utilities. AVC is calculated by dividing total variable cost by the number of units produced. Understanding average variable cost is important for businesses to make decisions on pricing, production levels, and profitability.

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