Answer to Question #52932 in Microeconomics for Yana

Question

Multiple choice
1. Suppose the price of a product is less than its average variable cost. When the firm's fixed obligations are completely ended, it will now most likely:
a. make an economic profit.
b. go out of business.
c. expand to a bigger operation.
d. break even.

Answer 1

1. Suppose the price of a product is less than its average variable cost. When the firm's fixed obligations are completely ended, it will now most likely:
b. go out of business.
Because if P<AVC, the firm can't cover even its variable costs and should shut down.