Figure 5.1 Cost and Demand Conditions of a Perfectly Competitive Firm

-Refer to Figure 5.1. If the firm's price falls to $35, it will
A) produce 50 units and realize a profit
B) produce 50 units and break even
C) produce 45 units and realize a loss
D) shut down

Question

Figure 5.1 Cost and Demand Conditions of a Perfectly Competitive Firm
 
-Refer to Figure 5.1. If the firm's price falls to $35, it will
A) produce 50 units and realize a profit 
B) produce 50 units and break even 
C) produce 45 units and realize a loss 
D) shut down

Quizplus · Accepted Answer

Without access to Figure 5.1, we can deduce that if a firm's price falls to $35 and it decides to produce 45 units while realizing a loss, it means that at this price, the firm's total revenue does not cover its total costs, but it covers its variable costs, making it better to operate at a loss than to shut down immediately.

Figure 51 Cost and Demand Conditions of a Perfectly Competitive Firm