Figure 14-1
Suppose that a firm in a competitive market has the following cost curves:
-Refer to Figure 14-1. The firm should shut down if the market price is

Question

Figure 14-1
Suppose that a firm in a competitive market has the following cost curves: 
-Refer to Figure 14-1. The firm should shut down if the market price is

Quizplus · Accepted Answer

In order to determine whether the firm should shut down or continue operating, we need to compare the market price (P) with the firm's shutdown price (minimum AVC).

In this case, the shutdown price is $4.50 (where AVC is at its minimum point).

If the market price is below $4.50, the firm should shut down because it would not even be able to cover its variable costs.

Therefore, the correct answer is D (less than $4.50).

Figure 14-1 Suppose That a Firm in a Competitive Market Has the Has