Asked by Dallin Kister on Sep 24, 2024
Verified
A firm will shut down in the long-run if
A) P>AVC
B) P<ATC
C) P=ATC
D) P>ATC
Long-Run
A period where all inputs or factors of production can be varied by firms, allowing them to adjust all aspects of their operations.
Shut Down
The process of ceasing operations, typically in a business context, either temporarily or permanently.
AVC
Average Variable Cost, which is the total variable costs of production divided by the quantity of output produced.
- Capture the essence of the decision-making process for a firm considering the cessation of operations in the short run and long run.
- Apprehend and demonstrate the significance of average variable costs, average costs, and price in the systematic approach to shutdown decisions.
Verified Answer
JS
Jayanti Sharma2 days ago
Final Answer :
B
Explanation :
In the long-run, ATC includes all costs, including fixed costs. Thus, a firm will shut down in the long-run if it cannot cover its total costs, including fixed costs. This occurs when price (P) is lower than average total cost (ATC), resulting in a loss for the firm. Therefore, B is the correct answer.
Learning Objectives
- Capture the essence of the decision-making process for a firm considering the cessation of operations in the short run and long run.
- Apprehend and demonstrate the significance of average variable costs, average costs, and price in the systematic approach to shutdown decisions.