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In the short run, a firm will produce as long as the price is greater than...

In the short run, a firm will produce as long as the price is greater than its:

A. MR.
B. MC.
C. ATC.
D. AVC.

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Answer #1

Answer: D. AVC

When the firm's average variable cost is higher than its price, the firm will surely face the losses. It is better for the firm to shut down the firm in the short run when the average variable cost becomes higher.

The revenue is the product of price and quantity. Always the total revenue should be greater than the total cost to earn profit. When the average variable cost is higher, the firm is incuring loss because the cost will be higher than the revenue.

Average total cost is not considered in this case because it includes fixed cost and the cost will reduce on producing more units.

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