If the price of a product falls below average total cost in the short run, the firm:
A) has an economic profit.
B) cannot cover total fixed costs.
C) experiences a loss.
D) must always shut down.

Question

Quizplus · Accepted Answer

If the price of a product falls below average total cost in the short run, the firm experiences a loss. However, it may still be able to cover variable costs and some portion of fixed costs. The firm can continue to operate in the short run if it can cover its variable costs, but may choose to shut down if it cannot cover its fixed costs in the long run.

If the Price of a Product Falls Below Average Total