Figure 13-1
Suppose that a firm in a competitive market has the following cost curves:
-Refer to Figure 13-1.If the market price falls below $4.50,the firm will earn

Question

Figure 13-1
Suppose that a firm in a competitive market has the following cost curves: 
-Refer to Figure 13-1.If the market price falls below $4.50,the firm will earn

Quizplus · Accepted Answer

If the market price falls below $4.50, the firm will not be able to cover its variable costs of producing, which are the costs of producing in the short run that must be paid regardless of whether the firm shuts down or not. Therefore, the firm will have negative economic profits in the short run. If the price remains below the minimum of the average variable cost curve (which is $6 in this case), the firm will not be able to cover its variable costs and will shut down in the short run. Therefore, the best choice is C: negative economic profits in the short run and shut down.

Figure 13-1 Suppose That a Firm in a Competitive Market Has the Has