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Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406

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BuyFindarrow_forward

Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406
Textbook Problem

Explain why a perfectly competitive firm will shut down in the short run if price is lower than average variable cost but will continue to produce if price is below average total cost but above average variable cost.

To determine

Relevance of price, average variable cost, and average total cost.

Explanation

If the average variable cost is greater than the price, the firm will not be able to meet the cost of production, such as cost of labor, electricity, and so on. Under these circumstances, the firm will shut down the production...

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