At what output level would a profit-maximizing perfectly competitive firm NEVER operate at? a. at an...
At what output level would a profit-maximizing perfectly competitive firm NEVER operate at?
a. at an output level where it would lose more than its total fixed costs
b. at an output level where it was NOT earning a positive economic profit
c. at an output level where it was NOT earning a zero economic profit
d. at an output level where it was NOT earning an accounting profit
Homework Answers
Ans.- (A)
A perfectly competitive firm will continue to operate as long as
P>AVC. When P<AVC, firm is not even able to cover its average
variable cost and it is losing its fixed cost as well as some
portion of the AVC (so it is losing more than its total fixed
costs).It will shut down in this case.
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