If market price is greater than or equal to the minimum of AVC but below the minimum of AC, then

Question

Quizplus · Accepted Answer

If the market price is greater than or equal to the minimum of AVC, it means that the firm is earning enough revenue to cover its variable costs. However, if the market price is below the minimum of AC, it means that the firm is not earning enough revenue to cover all its costs, including fixed costs. In this situation, if the firm shuts down, it would incur a loss equal to its fixed costs. Therefore, the best option for the firm is to continue operating in the short run, even if it incurs a loss, as its loss would be lower than if it shut down. Hence, choice B is correct.

If Market Price Is Greater Than or Equal to the Minimum