Question

If market price is greater than the minimum of AVC but below the minimum of​ AC, then A. revenue covers variable costs and some of the fixed costs and profit is positive. B. revenue covers variable costs and some of the fixed​ costs, although profit is negative. C. the firm will shut down. D. economic profit is zero.

Answer 1

Answer: If market price is greater than the minimum of AVC but below the minimum of​ AC, then "B. revenue covers variable costs and some of the fixed​ costs, although profit is negative.".

Explanation: In perfect competition if the price is higher than the average cost, there are profits.

If the price is equal to the variable cost the extraordinary gains are null, there is a normal benefit.

If the price is lower than the average cost but higher than the average variable cost, the company produces even if it has a negative benefit, because it can still cover the average variable costs.

If the price is less than the average cost and less than the average variable cost, the company closes because it cannot cover the variable costs.