The following figure depicts the short-run cost curves of a perfectly competitive firm.

-Refer to the figure above.Should the market price fall to $4,this film will ________.
A) shut down immediately and make zero profit
B) shut down immediately and suffer a loss equal to its fixed costs
C) continue operating in the short run and suffer a loss that is less than its fixed costs
D) produce 60 units and cover exactly its variable cost

Question

The following figure depicts the short-run cost curves of a perfectly competitive firm.
 
-Refer to the figure above.Should the market price fall to $4,this film will ________.
A) shut down immediately and make zero profit 
B) shut down immediately and suffer a loss equal to its fixed costs 
C) continue operating in the short run and suffer a loss that is less than its fixed costs 
D) produce 60 units and cover exactly its variable cost

Quizplus · Accepted Answer

If the market price falls to $4, which is below the average variable cost, the firm should shut down immediately and suffer a loss equal to its fixed costs, as it cannot cover its variable costs.

The Following Figure Depicts the Short-Run Cost Curves of a Perfectly