In the short run, a competitive firm should temporarily shut down when the market price is below its:
Correct answer: B. Average variable cost at its minimum point
- A. Average total cost at every output level
- B. Average variable cost at its minimum point
- C. Marginal revenue at the profit-maximizing output
- D. Fixed cost per unit at the current output
Explanation
A firm continues producing in the short run if revenue covers average variable cost and contributes toward fixed cost. If price falls below minimum average variable cost, producing increases the firm's loss.
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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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