Asked by Marcell Randall on May 16, 2024
Verified
Assume that in the short run a perfectly competitive firm does not produce output and has economic losses.This occurs at the quantity where MR = MC and:
A) P = ATC and FC = 0.
B) P < AVC and FC > 0.
C) AVC > P > ATC and FC = 0.
D) AVC < P < ATC and FC > 0.
MR = MC
An economic principle stating that optimal output level is reached when marginal revenue equals marginal cost, guiding profit-maximizing strategies for firms.
Economic Losses
Refers to the decrease in financial wealth of an entity, which can occur through various means such as business operations, market downturns, or unforeseen events leading to financial damage.
AVC
Average Variable Cost, which is the total variable costs divided by the quantity of output produced.
- Perceive the situations prompting a company to continue with its manufacturing activities or to halt them in the short term.
Verified Answer
CP
Cherielynne PhillipsMay 23, 2024
Final Answer :
B
Explanation :
Economic losses occur when the firm's price is less than its average variable cost (P < AVC) and the firm is still incurring fixed costs (FC > 0). In the short run, the firm cannot exit the market and must continue to produce at a loss as long as its price is greater than its average variable cost. Therefore, the best choice is B.
Learning Objectives
- Perceive the situations prompting a company to continue with its manufacturing activities or to halt them in the short term.