Figure 14-5
-Refer to Figure 14-5.Firms will shut down in the short run if the market price

Question

Figure 14-5 
-Refer to Figure 14-5.Firms will shut down in the short run if the market price

Quizplus · Accepted Answer

In the short run, firms will shut down if the market price is less than the minimum point of their average variable cost (AVC) curve, which is represented by point P1 in the graph. If the price is below P1, the firm would lose money on every unit produced, and shutting down would minimize its losses. Thus, the correct answer is B, which corresponds to a price that is less than P1.

Figure 14-5 -Refer to Figure 14-5.Firms Will Shut Down in the Short