The graph below depicts the cost structure for a firm in a competitive market. Figure 9-13 -Refer to Figure 9-13. When price falls from P₃ to P₁, the firm finds that A) fixed cost is higher at a production level of Q₁ than it is at Q₃. B) it should produce Q₁ units of output. C) it should produce Q₃ units of output. D) it should shut down immediately.

Question

Quizplus · Accepted Answer

When the price falls to P1, if it is below the average variable cost, the firm should shut down immediately to minimize losses, as it cannot cover its variable costs.

The Graph Below Depicts the Cost Structure for a Firm