If price falls below the minimum point on the AVC curve, in the short run the firm should ________, and in the long run the firm should ________.
A) produce where MC = MR; exit the industry
B) shut down; exit the industry
C) produce where MC = MR; expand
D) shut down; expand

Question

Quizplus · Accepted Answer

In the short run, if the price falls below the minimum point on the Average Variable Cost (AVC) curve, the firm should shut down to minimize losses because it cannot cover its variable costs. In the long run, if the situation does not improve, the firm should exit the industry as it cannot cover its total costs, including fixed costs.

If Price Falls Below the Minimum Point on the AVC