A monopolistically competitive firm that is incurring a loss will produce as long as the price that the firm charges is sufficient to cover ?
Correct answer: C. variable costs
- A. marginal costs
- B. fixed costs
- C. variable costs
- D. advertising costs
Explanation
A loss-making firm should continue operating in the short run when price covers average variable cost, because revenue then pays variable costs and contributes something toward fixed costs. It shuts down when price falls below average variable cost.
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About Microeconomics
Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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