Question

For a particular competitive firm, the minimum value of average variable cost (AVC) is $12 and is reached when 200 units of output are produced. For the same firm, the minimum value of average total cost (ATC) is $15 and is reached when 230 units of output are produced. Which of the following statements is correct?

Answer 1

Answer: The correct answer is that all the statement or scenarios are correct because in any case if price decreases the firm will shut down.

Explanation: Here when Average Variable Cost is $12 at output level 200 units, firm faces loss and firm can shut down. In first case considering short run, if price of the product decreases to $11, the firm will shut down. In the second case considering long run, if the price of the product decreases to $14, even then also the firm will shut down.