If P

Question

If P < AC in a given industry, then:
A) there are too many resources in that industry.
B) there are too few resources in that industry.
C) the industry has the optimal amount of resources.
D) it is not possible to determine whether the industry has the optimal amount of resources.

Quizplus · Accepted Answer

If the price (P) is less than the average cost (AC) of production in a given industry, it means that the industry is not generating enough revenue to cover its costs. This indicates that there are too many resources (such as labor, capital, and land) being allocated to this industry, leading to an oversupply of goods or services and driving down prices. Therefore, the optimal amount of resources has not been achieved, and there is an excess supply of resources that could be better utilized in other industries.

If P < AC in a Given Industry, Then