Question 21
Theory of Costs and RevenueA producer sustains a loss in the short run if
- A.marginal revenue is less than price
- B.price is less than average cost
- C.average variable cost is less than average cost
- D.marginal cost is less than marginal revenue.
Show the answer and explanation
Answer: B (price is less than average cost)
Explanation
Profit per unit is price minus average cost; if price is below average cost, the firm makes a loss.