Final answer:
The statement is false; selling at a price below the variable cost per unit will not contribute to covering fixed costs and results in a loss with every unit sold.
Step-by-step explanation:
The statement that as long as the selling price is less than the variable cost per unit, some contribution will be made to cover fixed costs is False. When the selling price is less than the variable cost per unit, the firm is not making enough revenue to cover even the variable costs of producing its product or service. Selling at a price below the variable costs means that the firm would lose additional money for every unit sold, as it would not cover the variable costs nor contribute to fixed costs.
Firms must understand their cost structure, particularly the relationship between fixed costs and variable costs, to make strategic decisions about pricing and production. Fixed costs are incurred regardless of the level of production, while variable costs vary with the level of output. The average variable cost (AVC) is the variable cost divided by the total output at each level of production and usually follows a U-shaped curve. If the market price is above the AVC, the firm can cover variable costs with additional revenue to contribute to fixed costs.
Shutting down becomes a serious consideration when the price falls below AVC. Under these conditions, it is more economical for the firm to shut down and stop production to minimize losses. Otherwise, continuing production would only add to the loss by increasing variable costs without being able to cover them through sales, let alone contribute to fixed costs.
Therefore, to contribute to fixed costs and aim for profitability, the selling price must at least cover the variable cost per unit. This principle is integral in understanding production and pricing strategies in the long run.