Asked by Reanna Stoops on Jul 09, 2024
Verified
If a firm observes that the price of its product is above average variable cost, it would choose to continue to produce the good in the short run, even if that firm experiences economic losses.
Average Variable Cost
The cost variable per unit of output produced, calculated by dividing total variable costs by the quantity of output.
Economic Losses
The reduction in financial wealth, goods, or services that results from an event or decision.
- Analyze the conditions under which firms in competitive markets would continue to produce in the short run despite economic losses.
Verified Answer
RD
ramesh dugarJul 12, 2024
Final Answer :
True
Explanation :
In the short run, if the price covers the average variable cost, the firm can cover its variable costs and contribute to covering its fixed costs, even if it's not making a profit. This is preferable to shutting down immediately, where it would still incur fixed costs without generating any revenue.
Learning Objectives
- Analyze the conditions under which firms in competitive markets would continue to produce in the short run despite economic losses.