If the price is less than a perfectly competitive firm's minimum average variable cost,the firm
A) makes an economic profit.
B) operates and incurs an economic loss equal to total fixed cost.
C) operates and incurs an economic loss equal to average variable cost.
D) shuts down and incurs an economic loss equal to total fixed cost.
E) shuts down and incurs an economic loss equal to average variable cost.

Question

Quizplus · Accepted Answer

If the price is less than the minimum average variable cost, the firm is not covering its variable costs, let alone its fixed costs. In this case, it's best for the firm to shut down operations and incur an economic loss equal to its total fixed cost.

If the Price Is Less Than a Perfectly Competitive Firm's