Which of the following statements is definitely true when price is less than average total cost for a firm producing the profit-maximizing level of output in the short run?

Question

Quizplus · Accepted Answer

When price is less than average total cost for a firm producing the profit-maximizing level of output in the short run, the firm is incurring an economic loss. This means that the total revenue earned by the firm is less than the total opportunity cost of the resources used in production, including both explicit and implicit costs. Option A is incorrect because it only refers to explicit costs, while economic profit takes into account implicit costs as well. Option B is incorrect because shutting down would only minimize losses if the firm's fixed costs were greater than its variable costs, but this is not specified in the question. Option C is incorrect because negative total revenue is not a meaningful concept.

Which of the Following Statements Is Definitely True When Price