CA Foundation Exam > CA Foundation Questions > When price is less than average variable cost...
Start Learning for Free
When price is less than average variable cost at the profit maximizing level of output, a firm should :
- a)Shut down, since it cannot recover its variable cost
- b)Produce where MC = MR, if operating in short run
- c)Produce where MC = MR, if operating in long run
- d)None of the above
Correct answer is option 'A'. Can you explain this answer?
| FREE This question is part of | Download PDF Attempt this Test |
Most Upvoted Answer
When price is less than average variable cost at the profit maximizing...
Shutting down when price is less than average variable cost
When a firm is producing a good or service, it incurs two types of costs: fixed costs and variable costs. Fixed costs are those that do not vary with the level of output, while variable costs are those that do vary with the level of output. The average variable cost (AVC) is the variable cost per unit of output.
When the price of a good or service is less than the average variable cost at the profit maximizing level of output, a firm is not able to cover its variable costs. In this case, the firm should shut down in the short run since it cannot recover its variable cost. Shutting down means that the firm stops producing and selling the good or service.
This decision is based on the fact that the firm's revenue is not sufficient to cover its variable costs, let alone its fixed costs. By shutting down, the firm is able to minimize its losses by avoiding the variable costs associated with production. This is because a firm's fixed costs will still have to be paid even if it shuts down.
In the long run, firms can exit the industry if they are unable to cover their total costs (fixed and variable costs). This means that firms can shut down permanently if they are not able to make a profit.
To summarize, when the price is less than average variable cost at the profit maximizing level of output, a firm should shut down in the short run since it cannot recover its variable cost. In the long run, firms can exit the industry if they are unable to cover their total costs.
When a firm is producing a good or service, it incurs two types of costs: fixed costs and variable costs. Fixed costs are those that do not vary with the level of output, while variable costs are those that do vary with the level of output. The average variable cost (AVC) is the variable cost per unit of output.
When the price of a good or service is less than the average variable cost at the profit maximizing level of output, a firm is not able to cover its variable costs. In this case, the firm should shut down in the short run since it cannot recover its variable cost. Shutting down means that the firm stops producing and selling the good or service.
This decision is based on the fact that the firm's revenue is not sufficient to cover its variable costs, let alone its fixed costs. By shutting down, the firm is able to minimize its losses by avoiding the variable costs associated with production. This is because a firm's fixed costs will still have to be paid even if it shuts down.
In the long run, firms can exit the industry if they are unable to cover their total costs (fixed and variable costs). This means that firms can shut down permanently if they are not able to make a profit.
To summarize, when the price is less than average variable cost at the profit maximizing level of output, a firm should shut down in the short run since it cannot recover its variable cost. In the long run, firms can exit the industry if they are unable to cover their total costs.
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
|
|
Top Courses for CA FoundationView all
When price is less than average variable cost at the profit maximizing level of output, a firm should :a)Shut down, since it cannot recover its variable costb)Produce where MC = MR, if operating in short runc)Produce where MC = MR, if operating in long rund)None of the aboveCorrect answer is option 'A'. Can you explain this answer?
Question Description
When price is less than average variable cost at the profit maximizing level of output, a firm should :a)Shut down, since it cannot recover its variable costb)Produce where MC = MR, if operating in short runc)Produce where MC = MR, if operating in long rund)None of the aboveCorrect answer is option 'A'. 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 When price is less than average variable cost at the profit maximizing level of output, a firm should :a)Shut down, since it cannot recover its variable costb)Produce where MC = MR, if operating in short runc)Produce where MC = MR, if operating in long rund)None of the aboveCorrect answer is option 'A'. 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 When price is less than average variable cost at the profit maximizing level of output, a firm should :a)Shut down, since it cannot recover its variable costb)Produce where MC = MR, if operating in short runc)Produce where MC = MR, if operating in long rund)None of the aboveCorrect answer is option 'A'. Can you explain this answer?.
When price is less than average variable cost at the profit maximizing level of output, a firm should :a)Shut down, since it cannot recover its variable costb)Produce where MC = MR, if operating in short runc)Produce where MC = MR, if operating in long rund)None of the aboveCorrect answer is option 'A'. 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 When price is less than average variable cost at the profit maximizing level of output, a firm should :a)Shut down, since it cannot recover its variable costb)Produce where MC = MR, if operating in short runc)Produce where MC = MR, if operating in long rund)None of the aboveCorrect answer is option 'A'. 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 When price is less than average variable cost at the profit maximizing level of output, a firm should :a)Shut down, since it cannot recover its variable costb)Produce where MC = MR, if operating in short runc)Produce where MC = MR, if operating in long rund)None of the aboveCorrect answer is option 'A'. Can you explain this answer?.
Solutions for When price is less than average variable cost at the profit maximizing level of output, a firm should :a)Shut down, since it cannot recover its variable costb)Produce where MC = MR, if operating in short runc)Produce where MC = MR, if operating in long rund)None of the aboveCorrect answer is option 'A'. 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 When price is less than average variable cost at the profit maximizing level of output, a firm should :a)Shut down, since it cannot recover its variable costb)Produce where MC = MR, if operating in short runc)Produce where MC = MR, if operating in long rund)None of the aboveCorrect answer is option 'A'. Can you explain this answer? defined & explained in the simplest way possible. Besides giving the explanation of
When price is less than average variable cost at the profit maximizing level of output, a firm should :a)Shut down, since it cannot recover its variable costb)Produce where MC = MR, if operating in short runc)Produce where MC = MR, if operating in long rund)None of the aboveCorrect answer is option 'A'. Can you explain this answer?, a detailed solution for When price is less than average variable cost at the profit maximizing level of output, a firm should :a)Shut down, since it cannot recover its variable costb)Produce where MC = MR, if operating in short runc)Produce where MC = MR, if operating in long rund)None of the aboveCorrect answer is option 'A'. Can you explain this answer? has been provided alongside types of When price is less than average variable cost at the profit maximizing level of output, a firm should :a)Shut down, since it cannot recover its variable costb)Produce where MC = MR, if operating in short runc)Produce where MC = MR, if operating in long rund)None of the aboveCorrect answer is option 'A'. Can you explain this answer? theory, EduRev gives you an
ample number of questions to practice When price is less than average variable cost at the profit maximizing level of output, a firm should :a)Shut down, since it cannot recover its variable costb)Produce where MC = MR, if operating in short runc)Produce where MC = MR, if operating in long rund)None of the aboveCorrect answer is option 'A'. 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
|
Follow Us
|
Signup to see your scores
go up within 7 days!
Access 1000+ FREE Docs, Videos and Tests
Takes less than 10 seconds to signup