In the short run, if price is less than average cost, a firm:
A) will certainly shut down.
B) might shut down, but might stay open.
C) is earning positive profits.
D) is earning normal profits.

Question

Quizplus · Accepted Answer

If the price is less than the average cost, the firm is incurring losses. In the short run, the firm may still continue to operate if the price is covering at least the variable cost. However, if the price is not able to cover the variable cost, then the firm may shut down. Therefore, the best answer is B as the firm might shut down, but might stay open.

In the Short Run, If Price Is Less Than Average