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In a competitive market, if price exceeds Average Variable Cost (AVC) but remains less than Average Cost (AC) at the equilibrium, the firm is:
- a)Making a profit
- b)Planning to quit
- c)Experiencing loss but should continue production
- d)Experiencing loss but should discontinue production
Correct answer is option 'C'. Can you explain this answer?
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Most Upvoted Answer
In a competitive market, if price exceeds Average Variable Cost (AVC) ...
Explanation:
In a competitive market, if the price exceeds the Average Variable Cost (AVC) but remains less than the Average Cost (AC) at the equilibrium, the firm is experiencing loss but should continue production. This can be explained under the following headings:
Average Variable Cost (AVC):
It is the total variable cost per unit of output. It includes all the costs that vary with the level of production such as raw materials, labor, etc. AVC is calculated by dividing the total variable cost by the total output.
Average Cost (AC):
It is the total cost per unit of output. It includes all the costs, both fixed and variable, that are incurred in the production process. AC is calculated by dividing the total cost by the total output.
Equilibrium Price:
It is the price at which the quantity demanded equals the quantity supplied. It is determined by the intersection of the demand and supply curve.
Profit:
Profit is the difference between total revenue and total cost. If the price exceeds the average cost, the firm is making a profit.
Loss:
Loss occurs when the total cost exceeds the total revenue. If the price is less than the average cost, the firm is experiencing a loss.
Should Continue Production:
If the price exceeds the average variable cost but remains less than the average cost, the firm is experiencing loss but should continue production. This is because the firm is able to cover its variable costs and some part of its fixed costs. By continuing production, the firm can minimize its losses in the short run. However, if the price remains below the average cost in the long run, the firm should discontinue production.
Conclusion:
In a competitive market, if the price exceeds the average variable cost but remains less than the average cost, the firm is experiencing loss but should continue production. The firm is able to cover its variable costs and some part of its fixed costs. By continuing production, the firm can minimize its losses in the short run.
In a competitive market, if the price exceeds the Average Variable Cost (AVC) but remains less than the Average Cost (AC) at the equilibrium, the firm is experiencing loss but should continue production. This can be explained under the following headings:
Average Variable Cost (AVC):
It is the total variable cost per unit of output. It includes all the costs that vary with the level of production such as raw materials, labor, etc. AVC is calculated by dividing the total variable cost by the total output.
Average Cost (AC):
It is the total cost per unit of output. It includes all the costs, both fixed and variable, that are incurred in the production process. AC is calculated by dividing the total cost by the total output.
Equilibrium Price:
It is the price at which the quantity demanded equals the quantity supplied. It is determined by the intersection of the demand and supply curve.
Profit:
Profit is the difference between total revenue and total cost. If the price exceeds the average cost, the firm is making a profit.
Loss:
Loss occurs when the total cost exceeds the total revenue. If the price is less than the average cost, the firm is experiencing a loss.
Should Continue Production:
If the price exceeds the average variable cost but remains less than the average cost, the firm is experiencing loss but should continue production. This is because the firm is able to cover its variable costs and some part of its fixed costs. By continuing production, the firm can minimize its losses in the short run. However, if the price remains below the average cost in the long run, the firm should discontinue production.
Conclusion:
In a competitive market, if the price exceeds the average variable cost but remains less than the average cost, the firm is experiencing loss but should continue production. The firm is able to cover its variable costs and some part of its fixed costs. By continuing production, the firm can minimize its losses in the short run.
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Community Answer
In a competitive market, if price exceeds Average Variable Cost (AVC) ...
As the firm is doing business, it's price can cover AVC as well as some part of AFC as price is greater than AFC. In this condition, the loss will be only the remaining part of AFC. But if the firm shut down its production, the lose will be entire AFC
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In a competitive market, if price exceeds Average Variable Cost (AVC) but remains less than Average Cost (AC) at the equilibrium, the firm is:a)Making a profitb)Planning to quitc)Experiencing loss but should continue productiond)Experiencing loss but should discontinue productionCorrect answer is option 'C'. Can you explain this answer?
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In a competitive market, if price exceeds Average Variable Cost (AVC) but remains less than Average Cost (AC) at the equilibrium, the firm is:a)Making a profitb)Planning to quitc)Experiencing loss but should continue productiond)Experiencing loss but should discontinue productionCorrect answer is option 'C'. Can you explain this answer?, a detailed solution for In a competitive market, if price exceeds Average Variable Cost (AVC) but remains less than Average Cost (AC) at the equilibrium, the firm is:a)Making a profitb)Planning to quitc)Experiencing loss but should continue productiond)Experiencing loss but should discontinue productionCorrect answer is option 'C'. Can you explain this answer? has been provided alongside types of In a competitive market, if price exceeds Average Variable Cost (AVC) but remains less than Average Cost (AC) at the equilibrium, the firm is:a)Making a profitb)Planning to quitc)Experiencing loss but should continue productiond)Experiencing loss but should discontinue productionCorrect answer is option 'C'. Can you explain this answer? theory, EduRev gives you an
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