Economics • Economic BasicsHard
In the theory of the firm, what condition defines the shutdown point for a perfectly competitive firm in the short run?
A. Price equals average total cost.
B. Price falls below average variable cost.✓ Correct Answer
C. Total revenue equals total fixed cost.
D. Marginal revenue exceeds marginal cost.
💡 Solution & Explanation
A perfectly competitive firm reaches its short-run shutdown point when the market price drops below the minimum average variable cost, meaning revenue fails to cover variable operating expenses. If price exceeds average variable cost but stays below average total cost, the firm continues operating temporarily to minimize losses by covering a portion of fixed costs. Microeconomics principles of the firm are standard topics in economic evaluations.
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