Asked by Mindy Bounheuangvilay on Jul 02, 2024
Verified
In order to continue operating,in the long-run a firm must
A) Charge a price equal to its AVC
B) Charge a price equal to its AFC
C) Charge a price equal to its AC
D) None of the above
Long-Run
Pertains to a period in which all factors of production and costs are variable, allowing companies to adjust all inputs.
AVC
Average Variable Cost, the total variable cost divided by the number of units produced, reflecting costs that change with output.
- Identify the circumstances under which ceasing a firm's activities in both the short run and long run becomes essential.
- Ascertain and expound the significance of average variable costs, cumulative average costs, and price in the strategic process of shutting down.
Verified Answer
DB
dallas blair4 days ago
Final Answer :
C
Explanation :
In the long-run, a firm must charge a price that is equal to its average cost (AC) if it wants to continue operating. The reason for this is because in the long-run, all costs become variable costs, including fixed costs. Therefore, the firm must cover all of its costs (both variable and fixed) in order to be profitable and continue operating. Charging a price that is equal to its AC will ensure that the firm is covering all of its costs while also earning a profit. Charging a price equal to its AVC or AFC will not be enough to cover all of its costs in the long-run.
Learning Objectives
- Identify the circumstances under which ceasing a firm's activities in both the short run and long run becomes essential.
- Ascertain and expound the significance of average variable costs, cumulative average costs, and price in the strategic process of shutting down.