Author Question: In the short run, why would a firm in a perfectly competitive market shut down production if the ... (Read 73 times)

BRWH · **on:** Jun 30, 2018

In the short run, why would a firm in a perfectly competitive market shut down production if the prevailing market price falls below the lowest possible average variable cost?
a. At that point (economic) profit is zero.
b. Below that point average revenue becomes less than marginal revenue.
c. Below that point marginal revenue becomes insufficient to pay for avoidable average variable cost.
d. Below that point other firms with similar cost will find it profitable to enter the market and take away demand from the existing firms.

Question 2

A good is classified as inferior if:
a. consumers buy less when the price rises.
b. consumers buy less when income rises.
c. consumers buy less when the price falls.
d. consumers buy more when income rises.
e. better quality goods exist.