Table 6.1
-Table 6.1 shows the cost structure of a firm in a perfectly competitive market. If the market price is $5

Question

Quizplus · Accepted Answer

In a perfectly competitive market, firms maximize profit or minimize losses by producing at the output level where marginal revenue (MR) equals marginal cost (MC). If the market price is $5, and assuming this price is above the firm's average variable cost but below its average total cost at the profit-maximizing output, the firm would indeed suffer a loss. However, it would still cover some of its fixed costs, making it better off producing than shutting down. Shutting down is only preferable if the price is below the average variable cost, as the firm would not be able to cover its variable costs. Choices B, C, and D suggest scenarios that are not necessarily implied by the given information.

Table 6.1 -Table 6.1 Shows the Cost Structure of a Firm in Firm