When price is less than a firm's average cost,:
A) the firm will shut down immediately.
B) additional firms will enter the market to steal profits from the struggling firm.
C) the firm may continue to operate in the short run if it can at least cover its fixed costs.
D) it may be more profitable to continue to operate if revenues at least cover the firm's variable costs.

Question

Quizplus · Accepted Answer

If a firm's price is less than its average cost, it may still be profitable to continue operating if it can cover its variable costs. In the short run, it may be difficult for the firm to adjust its fixed costs, but it can reduce its variable costs by producing a lower quantity of output. If revenues at least cover the variable costs, the firm can minimize its losses by continuing to operate.

When Price Is Less Than a Firm's Average Cost