Exhibit 7-3 Cost per unit curves

-If the price of the firm's product in Exhibit 7-3 is $1.50 per unit,which intersects AVC at point B,the firm should:

Question

Exhibit 7-3 Cost per unit curves
 
-If the price of the firm's product in Exhibit 7-3 is $1.50 per unit,which intersects AVC at point B,the firm should:

Quizplus · Accepted Answer

Point B represents the intersection of price ($1.50) and average variable cost (AVC). At this point, the firm is making a pure economic loss (P < AVC), but it is not completely covering its variable costs. However, it should stay in operation for the time being to minimize its losses as it can at least pay some of its fixed costs. If the firm shuts down temporarily, it would still have to pay its fixed costs, which would further increase its losses. Therefore, the best option for the firm in this case is to stay in operation for the time being, even though it is making a pure economic loss.

Exhibit 7-3 Cost Per Unit Curves