At an output of 15,AVC is $20 and MC is $18.At an output of 16,AVC is $20 and MC is $22.We may conclude that at the shutdown point AVC is

Question

Quizplus · Accepted Answer

At the shutdown point, the firm should only continue producing if the price is greater than or equal to the minimum average variable cost (AVC) necessary to cover variable costs.

Since the AVC at an output of 15 is $20, which is greater than the MC of $18, producing that level of output would be unprofitable.

Similarly, at an output of 16, the AVC is still $20, but the MC has increased to $22. Thus, producing that level of output would also be unprofitable.

Therefore, the shutdown point must be at an output level where the AVC is less than the minimum MC, which means that the answer is C: the AVC at the shutdown point must be less than $20.

At an Output of 15,AVC Is $20 and MC Is