Suppose the minimum average total cost (ATC) of a firm competing in a competitive price-taker market was $1.00 per unit and that the firm's minimum average variable cost (AVC) was $.80 per unit. If the market price was $.75 per unit, a profit-seeking firm would
A) shut down immediately.
B) produce where MR = MC in the short run.
C) shut down in the long run but remain in business in the short run.
D) do both b and c.

Question

Quizplus · Accepted Answer

The firm should shut down immediately because the market price ($0.75) is below the minimum average variable cost ($0.80), meaning the firm cannot cover its variable costs.

Suppose the Minimum Average Total Cost (ATC) of a Firm