Question

In: Economics

A firm is producing goods in a market where the market price is less than the​...

A firm is producing goods in a market where the market price is less than the​ firm's average total cost but greater than its average variable cost. At this point the firm​ should:

A.

shutdown production.

B.

increase price.

C.

continue to operate at a loss.

D.

decrease production.

Solutions

Expert Solution

Option

C.

continue to operate at a loss.

===

A firm produces at MR=MC up to the P>AVC to minimize loss.

If the P<AVC then the loss is above fixed cost so the firm shuts down but if the P>AVC then the loss is less than fixed cost so the firm does not shut down if the firm shuts down then the loss is equal to fixed cost.

Rahul Sunny answered 2 years ago
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