If a comparison between average cost and price reveals whether a firm is earning profits, then a comparison between average variable cost and price reveals
A) that if the market price exceeds average cost, profits will be positive.
B) that if the market price is below average cost, then profits will be negative.
C) total revenues are the quantity produced multiplied by the price.
D) whether the firm is earning profit if fixed costs are left out of the calculation.

Question

Quizplus · Accepted Answer

Comparing average variable cost (AVC) to price helps determine if a firm is covering its variable costs with its sales revenue. If the price is above AVC, the firm can cover its variable costs, and any excess can contribute to fixed costs, potentially leading to profit if fixed costs are excluded from the calculation. This comparison doesn't directly tell us about total profits since it leaves out fixed costs, but it does indicate whether the firm is in a position to potentially earn profits once fixed costs are covered.

If a Comparison Between Average Cost and Price Reveals Whether