Question

Many furniture stores run "going out of business" sales but never actually go out of business. Assume that furniture is sold in a perfectly competitive market. For a furniture firm to actually shut down in the short run, the price of furniture must be ______ than the ______ average variable cost.

a. less than; minimumb. more than; minimumc. more than; maximumd. less than; maximum

Answer 1

The correct answer here would be less than, minimum or option a. given in the answer options or list.

Step-by-step explanation:

• In Microeconomics,in the short run,the firm conventionally shuts down or runs out of business if the price charged by the firm to sell its product or service is at least equal or more than the minimum average variable cost.
• If the price charged by firm to sell its product or service is less than the average variable cost,it essentially implies that the firm is unable to generate enough revenue to cover at least its minimum variable cost or expense or operation or production.
• Therefore, in short run, in this case firm must maintain a price level for its furniture so that to covers at least the minimum variable costs of production in business to prevent shutting down or closing business. Otherwise,if the price is less than minimum average cost then the firm has to shutdown or run out of business.