If a perfectly competitive firm is losing money in the short run, then Select one:...

If a perfectly competitive firm is losing money in the short run, then
Select one:
a. it should never shut down in the short run
b. this is because price is equal to average total cost.
c. it should shut down only if its losses are greater than its fixed costs.
d. it should shut down only if price is smaller than average variable cost.
e. it should shut down?

To get notifications when anyone posts a new answer to this question,
Follow New Answers

Post an Answer

Please don't post or ask to join a "Group" or "Whatsapp Group" as a comment. It will be deleted. To join or start a group, please click here

Post UTME Past Questions 2019/2020
Post UTME Past Questions - 2019-2020 Exam Format + Free SMS Alerts - 6836

Answers (2)

isaaq
2 months ago
Answer.
d. it should shut down only if price is smaller than average variable cost.

When marginal revenue is below marginal cost, the firm is losing money, and consequently, it must reduce its output. ... In the short‐run, the amount of capital the firm uses is fixed at 1 unit. Assume that this firm is competing with many other firms in a perfectly competitive market.
Gaby
2 months ago
A perfectly competitive firm has only one
major decision to make—namely, what
quantity to produce. To understand why
this is so, consider a different way of
writing out the basic definition of profit:
Since a perfectly competitive firm must
accept the price for its output as
determined by the product’s market
demand and supply, it cannot choose the
price it charges. This is already
determined in the profit equation, and so
the perfectly competitive firm can sell any
number of units at exactly the same price.
It implies that the firm faces a perfectly
elastic demand curve for its product:
buyers are willing to buy any number of
units of output from the firm at the
market price. When the perfectly
competitive firm chooses what quantity to
produce, then this quantity—along with
the prices prevailing in the market for
output and inputs—will determine the
firm’s total revenue, total costs, and
ultimately, level of profits.
Ask Your Own Question

Quick Questions

See More Economics Questions
 
Post UTME Past Questions - 2019-2020 Exam Format + Free SMS Alerts - 6836
Post UTME Past Questions 2019/2020
Latest WAEC Past Questions 2019 App - Free Download - 6643