Question

Have you ever driven by a poorly maintained business facility and wondered why the owner does not either fix up the property or go out of business? Consider the story of the Still There Motel on Old Highway North, Anytown, USA. Which of the following case(s) do you think might apply to this motel? Explain why.

P > ATC making positive profit

P = ATC making zero profit (Break-even point)

P > AVC and P < ATC covering AVC and some of AFC

P = AVC cover only AVC and none of AFC

P < AVC (shut-down point)

Answer 1

Ans) the correct option is P > AVC and P < ATC covering AVC and some of AFC

When the price is less than average total cost, it incurs losses but it is able to cover its variable cost when price exceeds AVC