Suppose the price of a product is less than its average variable cost. When the firm's fixed obligations are completely ended, it will now most likely:
A) make an economic profit.
B) go out of business.
C) expand to a bigger operation.
D) continue to be shut down.
E) break even.

Question

Quizplus · Accepted Answer

If the price of a product is less than its average variable cost, the firm is already incurring losses for every unit produced and sold. If the fixed obligations of the firm are completely ended, it may continue to operate in the short run, but it cannot sustain in the long run as the losses will keep piling up. Therefore, the most likely outcome is that the firm will go out of business.

Suppose the Price of a Product Is Less Than Its