Question

A perfectly competitive firm will be ________________ if it operates at the minimum point on its average variable cost curve.

Group of answer choices

a) minimizing profits

b) breaking even

c) operating at its shutdown point.

d) maximizing losses

Answer 1

The answer is b- breaking even

If the market price at the profit-maximizing output level is equal to the average cost, then the company will make zero profits. The point where the marginal cost curve crosses the average cost curve is called the break-even point at the minimum of the average cost curve. If the market price facing a perfectly competitive company at the profit-maximizing quantity of product is below average variable cost, then the company must immediately shut down operations. If the market price facing a perfectly competitive company is above average variable cost, but below average cost, then in the short run the company should continue to produce, but in the long run, exit.