Explain why the price needs to cover the average variable cost (AVC) of a firm.

Question

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Answer 1

Question

Chapter 8, Problem 1QP

To determine

Explain why the price needs to cover the average variable cost (AVC) of a firm.

Expert Solution & Answer

Explanation of Solution

The average total cost (ATC) of a firm is the sum total of average variable cost (AVC) and the average fixed cost (AFC). The price and the AVC of a firm should be equal. This means that a firm should continue to produce as long as the price is higher than the average AVC. Once price drops below that point, it makes sense to shut down temporarily. Otherwise, losses of the firm will exceed the fixed cost. Finally, the firm will stop the production and close the firm.

Hence, if a firm wants to continue its operations in the market, then the price have to cover the AVC of the firm.

Economics Concept Introduction

Average variable cost: The average variable cost is the total variable cost divided by the quantity produced in a given time period.

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Answer 2

Question

Chapter 8, Problem 1QP

To determine

Explain why the price needs to cover the average variable cost (AVC) of a firm.

Expert Solution & Answer

Explanation of Solution

The average total cost (ATC) of a firm is the sum total of average variable cost (AVC) and the average fixed cost (AFC). The price and the AVC of a firm should be equal. This means that a firm should continue to produce as long as the price is higher than the average AVC. Once price drops below that point, it makes sense to shut down temporarily. Otherwise, losses of the firm will exceed the fixed cost. Finally, the firm will stop the production and close the firm.

Hence, if a firm wants to continue its operations in the market, then the price have to cover the AVC of the firm.

Economics Concept Introduction

Average variable cost: The average variable cost is the total variable cost divided by the quantity produced in a given time period.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 8, Problem 1QP

To determine

Explain why the price needs to cover the average variable cost (AVC) of a firm.

Expert Solution & Answer

Explanation of Solution

The average total cost (ATC) of a firm is the sum total of average variable cost (AVC) and the average fixed cost (AFC). The price and the AVC of a firm should be equal. This means that a firm should continue to produce as long as the price is higher than the average AVC. Once price drops below that point, it makes sense to shut down temporarily. Otherwise, losses of the firm will exceed the fixed cost. Finally, the firm will stop the production and close the firm.

Hence, if a firm wants to continue its operations in the market, then the price have to cover the AVC of the firm.

Economics Concept Introduction

Average variable cost: The average variable cost is the total variable cost divided by the quantity produced in a given time period.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 8, Problem 1QP

To determine

Explain why the price needs to cover the average variable cost (AVC) of a firm.

Expert Solution & Answer

Explanation of Solution

The average total cost (ATC) of a firm is the sum total of average variable cost (AVC) and the average fixed cost (AFC). The price and the AVC of a firm should be equal. This means that a firm should continue to produce as long as the price is higher than the average AVC. Once price drops below that point, it makes sense to shut down temporarily. Otherwise, losses of the firm will exceed the fixed cost. Finally, the firm will stop the production and close the firm.

Hence, if a firm wants to continue its operations in the market, then the price have to cover the AVC of the firm.

Economics Concept Introduction

Average variable cost: The average variable cost is the total variable cost divided by the quantity produced in a given time period.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 8, Problem 1QP

To determine

Explain why the price needs to cover the average variable cost (AVC) of a firm.

Expert Solution & Answer

Explanation of Solution

The average total cost (ATC) of a firm is the sum total of average variable cost (AVC) and the average fixed cost (AFC). The price and the AVC of a firm should be equal. This means that a firm should continue to produce as long as the price is higher than the average AVC. Once price drops below that point, it makes sense to shut down temporarily. Otherwise, losses of the firm will exceed the fixed cost. Finally, the firm will stop the production and close the firm.

Hence, if a firm wants to continue its operations in the market, then the price have to cover the AVC of the firm.

Economics Concept Introduction

Average variable cost: The average variable cost is the total variable cost divided by the quantity produced in a given time period.

Answer 6

Chapter 8, Problem 1QP

To determine

Explain why the price needs to cover the average variable cost (AVC) of a firm.

Expert Solution & Answer

Explanation of Solution

The average total cost (ATC) of a firm is the sum total of average variable cost (AVC) and the average fixed cost (AFC). The price and the AVC of a firm should be equal. This means that a firm should continue to produce as long as the price is higher than the average AVC. Once price drops below that point, it makes sense to shut down temporarily. Otherwise, losses of the firm will exceed the fixed cost. Finally, the firm will stop the production and close the firm.

Hence, if a firm wants to continue its operations in the market, then the price have to cover the AVC of the firm.

Economics Concept Introduction

Average variable cost: The average variable cost is the total variable cost divided by the quantity produced in a given time period.

Answer 7

Chapter 8, Problem 1QP

To determine

Explain why the price needs to cover the average variable cost (AVC) of a firm.

Answer 8

Expert Solution & Answer

Explanation of Solution

The average total cost (ATC) of a firm is the sum total of average variable cost (AVC) and the average fixed cost (AFC). The price and the AVC of a firm should be equal. This means that a firm should continue to produce as long as the price is higher than the average AVC. Once price drops below that point, it makes sense to shut down temporarily. Otherwise, losses of the firm will exceed the fixed cost. Finally, the firm will stop the production and close the firm.

Hence, if a firm wants to continue its operations in the market, then the price have to cover the AVC of the firm.