In the short run, why would a firm in a perfectly competitive market shut down production if the prevailing market price falls below the lowest possible average variable cost?

A. At that point (economic) profit is zero.
B. Below that point average revenue becomes less than marginal revenue.
C. Below that point marginal revenue becomes insufficient to pay for avoidable average variable cost.
D. Below that point other firms with similar cost will find it profitable to enter the market and take away demand from the existing firms.


Answer: C

Economics

You might also like to view...

According to the graph, how many board feet of lumber will be imported if imports are allowed into the United States?

a. 1,200,000

b. 500,000

c. 1,000,000

d. 740,000

Economics

Most modern countries have prohibitions on the trading of human organs in the marketplace

What impact do you believe such laws have had on the availability of organs for patients that need them? Furthermore, which people are most likely to be able to obtain the organs that they require and why? Explain the ethical dilemma that is at work that makes the strict application of basic economic principles difficult to put into practice in cases like this.

Economics

The federal government debt ________ when the federal government runs a deficit and ________ when the federal government runs a surplus

A) increases; increases B) decreases; decreases C) increases; decreases D) decreases; increases

Economics

If aggregate quantity supplied exceeds aggregate quantity demanded, we can expect an unplanned

a. depletion of inventories, causing firms to raise prices. b. depletion of inventories, causing firms to lower prices. c. accumulation of inventories, causing firms to raise prices. d. accumulation of inventories, causing firms to lower prices.

Economics