If price is above average variable cost and below average total cost, a profit-maximizing price taker should
A) immediately shut down; failing to do so is contrary to the idea of profit maximization in a competitive market.
B) continue producing as long as it expects the market price to rise above average total cost in the near future.
C) attempt to push price upward by slowly reducing output.
D) cut price so more units can be sold.

Question

Quizplus · Accepted Answer

When price is above average variable cost but below average total cost, the firm should continue producing in the short run as it covers its variable costs and contributes to fixed costs, hoping for future price increases.

If Price Is Above Average Variable Cost and Below Average