Asked by Shania Gaston on May 12, 2024
Verified
Refer to Figure 8.4.3 above. The firm in this situation should decide to:
A) shut down.
B) produce at a loss.
C) produce and earn the resulting profit.
D) produce or shut down, with the same outcome.
Loss
A financial condition where costs exceed revenues, resulting in a negative profit.
- Connect the principles of average variable cost (AVC), average total cost (ATC), and minimum efficient scale to a company's short-term and long-term strategic choices.
- Determine situations in which companies ought to persist in operations or cease activities in the short-term by assessing the price against AVC and ATC.
Verified Answer
GP
Glory PhilipMay 16, 2024
Final Answer :
B
Explanation :
In the context of economics, if a firm's total revenue covers its variable costs but not its total costs, it should continue to produce in the short run to minimize losses. Shutting down would mean not covering any fixed costs, while producing at a loss allows the firm to cover some fixed costs, reducing overall losses. Choices A, C, and D do not accurately reflect this principle without additional context from Figure 8.4.3.
Learning Objectives
- Connect the principles of average variable cost (AVC), average total cost (ATC), and minimum efficient scale to a company's short-term and long-term strategic choices.
- Determine situations in which companies ought to persist in operations or cease activities in the short-term by assessing the price against AVC and ATC.