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Consider a firm in the short run which chooses to remain open while it is losing...

Consider a firm in the short run which chooses to remain open while it is losing money. To reflect this situation, order the following values from lowest to highest:

Average total cost, average variable cost, price

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Answer #1

Average total cost> price> average variable cost

A firm produces at MC=MR if the P>AVC otherwise shutdown

Because

Loss if P<AVC is =(AVC-P)*Q+fixed cost

loss if shutdown is=fixed cost

so a firm shutdown if the P<AVC

But if the P>AVC and the firm shut down then the loss is equal to fixed cost and not then

loss =fixed cost -(P-AVC)*Q

so to minimize the loss the firm should produce if the P>AVC even the P<ATC

so the order is

ATC>P>AVC

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