Asked by Jayleen Bocanegra on May 31, 2024
Verified
If a graph of a perfectly competitive firm shows that the 
point occurs where MR is above AVC but below ATC,
A) the firm is earning negative profit, and will shut down rather than produce that level of output.
B) the firm is earning negative profit, but will continue to produce where 
in the short run.
C) the firm is still earning positive profit, as long as variable costs are covered.
D) the firm is covering explicit, but not implicit, costs.
E) the firm can cover all of fixed costs but only a portion of variable costs.
Perfectly Competitive Firm
A company that operates in a market where there are many buyers and sellers, no barriers to entry or exit, and the firm sells a homogeneous product.
MR
The extra revenue that a firm gains when it sells an additional unit of output, essentially another term for marginal revenue.
AVC
Average Variable Cost, the total variable costs divided by the quantity of output produced.
- Associate the concepts of average variable cost (AVC), average total cost (ATC), and minimum efficient scale to firm's short-run and long-run decisions.
- Identify scenarios where firms should continue operating or shut down in the short run based on comparisons of price with AVC and ATC.
Verified Answer
RM
Rouba MezherJun 05, 2024
Final Answer :
B
Explanation :
The point occurs where MR equals MC, which is the profit-maximizing level of output. If MR is above AVC but below ATC, the firm is still covering its variable costs but not its fixed costs. This means that the firm is earning negative profit, but it will continue to produce in the short run as long as it can cover its variable costs. Therefore, option B is the best choice.
point occurs where MR equals MC, which is the profit-maximizing level of output. If MR is above AVC but below ATC, the firm is still covering its variable costs but not its fixed costs. This means that the firm is earning negative profit, but it will continue to produce in the short run as long as it can cover its variable costs. Therefore, option B is the best choice.
Learning Objectives
- Associate the concepts of average variable cost (AVC), average total cost (ATC), and minimum efficient scale to firm's short-run and long-run decisions.
- Identify scenarios where firms should continue operating or shut down in the short run based on comparisons of price with AVC and ATC.