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If price falls below minimum average variable cost, the best a firm can do is: A) stop...

Question:

If price falls below minimum average variable cost, the best a firm can do is:

A) stop production and incur a loss equal to total fixed cost.

B) increase production and incur a loss equal to total fixed cost.

C) stay at the same production level and incur a loss equal to the difference between total cost and total revenue.

D) increase production and incur a loss equal to total variable cost.

E) stop production and incur a loss equal to total variable cost.

Variable Cost:

The term variable cost is the cost that directly depends on the level of production of a firm. Usually, as the production of output rises, the variable cost rises, and another way around.

Answer and Explanation: 1

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  • The correct option is A. Stop production and incurs a loss equal to the total fixed cost.

A firm short-run production decision is dependent on whether...

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Using the Total Cost Curve to Make Production Decisions in the Short-Run

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Chapter 4 / Lesson 7
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Producers use something called the total cost curve in order to make decisions about their products in the short-run. Explore what total cost and the total cost curve are and how they help producers make decisions in the short-run.


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