Assume that the market price is $10 and the minimum AVC is $15. The firm should:
A) increase production.
B) continue to operate at the same level.
C) decrease production.
D) shut down.

Question

Quizplus · Accepted Answer

Since the market price is lower than the minimum average variable cost, the firm is incurring losses on each unit produced. To minimize losses, the firm should shut down and produce zero units. This is because if the firm continues to produce, it will incur a loss that is greater than the loss incurred by shutting down.

Assume That the Market Price Is $10 and the Minimum