Use the following statements to answer this question: I. The firm's decision to produce zero output when the price is less than the average variable cost of production is known as the shutdown rule.
II) The firm's supply decision is to generate zero output for all prices below the minimum AVC.
A) I and II are true.
B) I is true and II is false.
C) II is true and I is false.
D) I and II are false.

Question

Quizplus · Accepted Answer

Both statements I and II are true and refer to the same concept, which is the shutdown rule. The rule states that a firm will produce zero output if the price of the good is less than the average variable cost of production. This is because the firm would incur losses if it were to produce any output at a price below the minimum AVC. Thus, both statements are correct and complementary.

Use the Following Statements to Answer This Question: I