Suppose that,in running your business,you find that the price of your product is less than AVC.Given this information you should:
A)minimize your losses by producing where P = MC
B)maximize your profits by producing where P = MC
C)close down because, by producing, your losses will exceed your fixed costs
D)close down because total revenue exceeds variable costs
E)close down because total revenue exceeds total cost

Question

Quizplus · Accepted Answer

If the price of the product is less than AVC, it means that each unit produced is causing a loss to the business. In such a scenario, producing more units will only increase the losses. Hence, the business should minimize its losses by producing nothing at all, i.e. shutting down and avoiding variable costs that would be incurred by producing. Therefore, the best choice is to close down the business.

Suppose That,in Running Your Business,you Find That the Price of Your