Question

use the following statements to answer this question: firm's decision to produce zero output when the price is less than the average variable cost of production is known as the shutdown rule. firm's supply decision is to generate zero output for all prices below the minimum avc. question 11 options: a) i and ii are true. b) i is true and ii is false. c) ii is true and i is false. d) i and ii are false.

Answer 1

Both statements I and II are true, as they describe the shutdown rule in a perfectly competitive market, where a firm will choose to produce no output when the price is below its average variable costs.

Step-by-step explanation:

The two statements being evaluated concern the behavior of firms in perfectly competitive markets and their decisions related to shutting down production. Statement I explains the shutdown rule, which is that a firm will choose to produce zero output when the market price is less than the average variable cost (AVC) of production. This is because producing would lead to losses greater than the firm's fixed costs, as it would not cover the variable costs. Statement II states a firm's supply decision to produce zero output for all prices below the minimum AVC is also correct.

Both statements are essentially describing the same economic principle from slightly different perspectives. Therefore, the correct answer is Option A: both I and II are true.