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.
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
- 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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fromChapter 4 / Lesson 7
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.