Asked by Brandon Cannon on May 03, 2024
Verified
Refer to Figure 8.4.3 above. When the firm produces the loss-minimizing level of output, it can recover:
A) all of the variable cost and part of the fixed cost.
B) all of the fixed cost and part of the variable cost.
C) neither the fixed nor the variable cost in their totality.
D) all of the variable cost, but none of the fixed cost.
Loss-Minimizing Level
The production level at which a firm minimizes its losses in the short run when it cannot cover total costs, but can cover variable costs.
Fixed Cost
Expenses that do not change with the level of production or sales, such as rent, salaries, and insurance.
Variable Cost
Costs that change in proportion to the good or service that a business produces.
- Associate the theories of average variable cost (AVC), average total cost (ATC), and minimum efficient scale with the operational decisions a firm makes in both the short and long term.
- Evaluate conditions under which organizations are advised to keep functioning or to shut down in the short run, based on the comparison of price to AVC and ATC.
Verified Answer
AC
Ana Carolina Cerezer PintoMay 07, 2024
Final Answer :
A
Explanation :
When a firm produces the loss-minimizing level of output, it typically does so by covering all of its variable costs and possibly part of its fixed costs. The price at this level is at least equal to the average variable cost, allowing the firm to cover these variable costs with its revenue. Fixed costs, however, are sunk in the short run and may not be fully covered if the price does not exceed the average total cost.
Learning Objectives
- Associate the theories of average variable cost (AVC), average total cost (ATC), and minimum efficient scale with the operational decisions a firm makes in both the short and long term.
- Evaluate conditions under which organizations are advised to keep functioning or to shut down in the short run, based on the comparison of price to AVC and ATC.