Question

If a comparison between average cost and price reveals whether a firm is earning profits, then a comparison between average variable cost and price reveals

a. that if the market price exceeds average cost, profits will be positive.
b. that if the market price is below average cost, then profits will be negative.
c. total revenues are the quantity produced multiplied by the price.
d. whether the firm is earning profit if fixed costs are left out of the calculation.

Answer 1

d. whether the firm is earning profit if fixed costs are left out of the calculation.

Step-by-step explanation:

When price exceeds ATC, (ATC includes fixed cost) we are able to know that the firm is earning overall profits.

Now if price exceeds AVC (AVC excludes fixed cost) we will be able to realize that the firm is earning profits where fixed costs are subtracted.