If the market price drops below a firm's average variable costs at its profit-maximizing level of output:

Question

Quizplus · Accepted Answer

When the market price drops below a firm's average variable costs at its profit-maximizing level of output, the firm is not earning enough revenue to cover the variable costs of production, making the loss-minimizing quantity of output zero. Therefore, the firm should shut down immediately to minimize losses, making all of the provided options correct.

If the Market Price Drops Below a Firm's Average Variable