Which of the following statements is definitely true when priceis less than average total cost...

Which of the following statements is definitely true when price is less than average total cost for a firm producing the profit-maximizing level of output in the short run?

a.The firm will be earning negative total revenue.

b.The firm is running a loss in an accounting sense, so that total revenue is less than total explicit costs.

c. The firm is incurring an economic loss.

d.The firm will minimize its losses by shutting down.

Expert Solution

Answer is C. Firm is incurring economic loss.

Because if average total cost is higher then price, it means total cost are greater than total revenue and difference between total revenue and total cost is the economic losses firm is facing.

Total revenue will be positive and accounting profit is calculated when explicit cost are given seperately and shut down decision depends on average variable cost which is not given here.

Rahul Sunny answered 2 years ago

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