If price is less than average variable cost at a level of output where marginal revenue is equal to marginal cost, then in the short run the firm

Question

Quizplus · Accepted Answer

If price is less than average variable cost, the firm is not even covering its variable costs which are the costs it incurs in producing a single unit of output. In such a case, the firm will continue to incur losses for every unit it produces and sells. Hence, the firm should shut down in the short run to minimize its losses.

If Price Is Less Than Average Variable Cost at a Level