If the market price of a product is between the minimum average variable cost (AVC)and minimum average total cost (ATC)of a firm,that firm will
A) always shut down.
B) always continue to produce.
C) produce in the short run but shut down in the long run.
D) produce in the long run but shut down in the short run.
E) make positive economic profits.

Question

Quizplus · Accepted Answer

If the market price of a product is between the minimum AVC and minimum ATC of a firm, the firm will produce in the short run because price covers at least the variable costs, but not necessarily the fixed costs. However, in the long run, the firm will shut down if the price is below the minimum ATC, as it cannot cover all the costs including fixed costs. Therefore, the best choice is C, which indicates that the firm will produce in the short run but shut down in the long run.

If the Market Price of a Product Is Between the Minimum