Gamma Corporation's marginal cost curve intersects its average variable cost curve at $100 and intersects its average total cost curve at $800. What happens at a price of $700?

Question

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At a price of $700, Gamma Corporation covers its average variable costs (since $700 is above the $100 intersection point) but does not cover its average total costs (since $700 is below the $800 intersection point). This means it can cover its variable costs and some of its fixed costs in the short run, making it viable to produce in the short run. However, in the long run, it cannot sustain production without covering all its costs, including fixed costs, hence it will not produce in the long run.

Gamma Corporation's Marginal Cost Curve Intersects Its Average Variable Cost