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Answer to Question #80850 in Economics for Anthea Willenburg
Question #80850
Please assist:
If a profit-maximising firm sells it's product for R300, but continues to produce even though it is making a loss, This suggests that
1. The marginal cost is less than the price
2. The average fixed cost is less than the price
3. The average variable cost is less than the price
4. The a average total cost is less than the price
If a profit-maximising firm sells it's product for R300, but continues to produce even though it is making a loss, This suggests that
1. The marginal cost is less than the price
2. The average fixed cost is less than the price
3. The average variable cost is less than the price
4. The a average total cost is less than the price
Expert's answer
4.The a average total cost is less than the price
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Comments
Dear Anthea Willenburg, correct answer is 4.
AVC, combined with price , indicates whether or not a firm should shut down production in the short run. If price >than AVC, the firm is able to pay all VC and a portion of FC. Even though it might be incurring an economic loss, it will lose less by producing that by shutting down production.(https://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=average+variable+cost) Should the answer then not be 3. The average variable cost is less than the price
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