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JAMB Economics 2001 Question 16

Question 16

Market Structures

A firm's shut-down point is reached when the average revenue fails to cover the

  1. A.average variable cost
  2. B.marginal cost
  3. C.average total cost
  4. D.average fixed cost
Show the answer and explanation

Answer: A (average variable cost)

Explanation

In the short run a firm keeps producing as long as price (average revenue) covers average variable cost; below that it shuts down.