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

The firm should shut down if the market price is less than its average variable cost (AVC) at the profit-maximizing output. Without the figure, we typically assume that if the price is below AVC, the firm cannot cover its variable costs and should therefore shut down in the short run. Since $6 is suggested as a threshold, it implies that it might be the AVC at a certain output level.

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