CA Foundation Exam > CA Foundation Questions > In a competitive market, if price exceeds Ave...
Start Learning for Free
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?
| FREE This question is part of | Download PDF Attempt this Test |
Most Upvoted Answer
In a competitive market, if price exceeds Average Variable Cost (AVC) ...
Explanation:
In a competitive market, a firm will continue to produce as long as it is able to cover its variable costs. Variable costs are the costs that vary with the level of output, such as the cost of raw materials, labor, and energy. If the price of the product is greater than the variable cost of producing it, the firm will be able to cover its variable costs and make a positive contribution to fixed costs. However, if the price is less than the average total cost, the firm will be experiencing a loss.
AVC and AC
- Average Variable Cost (AVC) is the variable cost per unit of output. It is calculated by dividing total variable cost by the level of output.
- Average Cost (AC) is the total cost per unit of output. It is calculated by dividing total cost (fixed and variable) by the level of output.
Equilibrium
In a competitive market, the equilibrium price is determined by the intersection of the market demand and supply curves. At the equilibrium price, the quantity demanded and supplied are equal. If the equilibrium price is greater than the AVC, the firm will be able to cover its variable costs and make a positive contribution to fixed costs. However, if the equilibrium price is less than the AC, the firm will be experiencing a loss.
Option C - Experiencing loss but should continue production
If the price exceeds the AVC but remains less than the AC at the equilibrium, the firm will be experiencing a loss. However, since the price is greater than the AVC, the firm will be able to cover its variable costs. In this situation, the firm should continue to produce in the short run, as it will be able to cover its variable costs and make a positive contribution to fixed costs. In the long run, the firm may need to adjust its production or exit the market if it is unable to cover its total costs. Therefore, option C is the correct answer.
In a competitive market, a firm will continue to produce as long as it is able to cover its variable costs. Variable costs are the costs that vary with the level of output, such as the cost of raw materials, labor, and energy. If the price of the product is greater than the variable cost of producing it, the firm will be able to cover its variable costs and make a positive contribution to fixed costs. However, if the price is less than the average total cost, the firm will be experiencing a loss.
AVC and AC
- Average Variable Cost (AVC) is the variable cost per unit of output. It is calculated by dividing total variable cost by the level of output.
- Average Cost (AC) is the total cost per unit of output. It is calculated by dividing total cost (fixed and variable) by the level of output.
Equilibrium
In a competitive market, the equilibrium price is determined by the intersection of the market demand and supply curves. At the equilibrium price, the quantity demanded and supplied are equal. If the equilibrium price is greater than the AVC, the firm will be able to cover its variable costs and make a positive contribution to fixed costs. However, if the equilibrium price is less than the AC, the firm will be experiencing a loss.
Option C - Experiencing loss but should continue production
If the price exceeds the AVC but remains less than the AC at the equilibrium, the firm will be experiencing a loss. However, since the price is greater than the AVC, the firm will be able to cover its variable costs. In this situation, the firm should continue to produce in the short run, as it will be able to cover its variable costs and make a positive contribution to fixed costs. In the long run, the firm may need to adjust its production or exit the market if it is unable to cover its total costs. Therefore, option C is the correct answer.
Attention CA Foundation Students!
To make sure you are not studying endlessly, EduRev has designed CA Foundation study material, with Structured Courses, Videos, & Test Series. Plus get personalized analysis, doubt solving and improvement plans to achieve a great score in CA Foundation.
|
Explore Courses for CA Foundation exam
|
|
Similar CA Foundation Doubts
Top Courses for CA FoundationView all
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?
Question Description
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? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about 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? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below 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?.
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? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about 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? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below 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?.
Solutions 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? in English & in Hindi are available as part of our courses for CA Foundation.
Download more important topics, notes, lectures and mock test series for CA Foundation Exam by signing up for free.
Here you can find the meaning 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? defined & explained in the simplest way possible. Besides giving the explanation 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?, 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
ample number of questions to practice 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? tests, examples and also practice CA Foundation tests.
|
|
Explore Courses for CA Foundation exam
|
|
Suggested Free Tests
Signup for Free!
Signup to see your scores go up within 7 days! Learn & Practice with 1000+ FREE Notes, Videos & Tests.
|
© EduRev
|
Education Revolution
|
|
Signup to see your scores
go up within 7 days!
Access 1000+ FREE Docs, Videos and Tests
Takes less than 10 seconds to signup