Figure 14-4
Suppose a firm operating in a competitive market has the following cost curves:
-Refer to Figure 14-4. When price falls from P3 to P1, the firm finds that it
A)decreases its fixed costs.
B)should produce Q1 units of output.
C)should produce Q3 units of output.
D)should shut down immediately.

Question

Figure 14-4
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-4. When price falls from P3 to P1, the firm finds that it
A)decreases its fixed costs. 
B)should produce Q1 units of output. 
C)should produce Q3 units of output. 
D)should shut down immediately.

Quizplus · Accepted Answer

When the price falls to P1, it is likely below the firm's average variable cost, indicating that the firm should shut down to minimize losses.

Figure 14-4 Suppose a Firm Operating in a Competitive Market Has the Has