Suppose you find that the price of your product is less than minimum AVC. You should
A)minimize your losses by producing where P = MC.
B)maximize your profits by producing where P = MC.
C)close down because, by producing, your losses will exceed your total fixed costs.
D)close down because total revenue exceeds total variable cost.

Question

Quizplus · Accepted Answer

When the price of a product is less than the minimum average variable cost (AVC), the firm cannot cover its variable costs, let alone any fixed costs. Therefore, continuing production would lead to losses greater than the total fixed costs, making shutting down the most financially prudent decision in the short run.

Suppose You Find That the Price of Your Product Is