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WAEC Economics 2008 Question 22

Question 22

Market Structures

The purely competitive firm should close down when its price is less than its

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

Answer: A (average variable cost)

Explanation

If price cannot cover average variable cost, producing loses more than stopping, so the firm shuts down.