Answered: If price is consistently below average…

If price is consistently below average variable cost, then in the short run a perfectly competitive firm should: A. raise price. B. sell more output. C. shut down. D. lower price to sell more.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter5: Investment Decisions: Look Ahead And Reason Back

Section: Chapter Questions

Problem 5.7IP

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Question

If price is consistently below average variable cost, then in the short run a perfectly competitive firm should:

A. raise price.
B. sell more output.
C. shut down.
D. lower price to sell more.

Definition Definition Structure of the market that exists when many buyers and sellers exchange similar commodities and prices are fixed by market forces, demand, and supply. When there is perfect competition, a single business cannot impact the price or market value of the homogenous product.

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At what point should firms shut down in the short run? a. when marginal revenue equals marginal costs b. when average revenue is below average costs c. when average revenue is above average total cost d. when average revenue is below average variable costs
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