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WAEC Economics 2012 Question 19

Question 19

Market Structures

If a firm's price is less than average cost but more than average variable cost, the firm is covering

  1. A.all of its fixed cost and variable cost.
  2. B.all of its fixed cost and part of variable cost.
  3. C.all of its variable cost and part of fixed cost.
  4. D.part of its fixed cost and part of variable cost.
Show the answer and explanation

Answer: C (all of its variable cost and part of fixed cost.)

Explanation

Price above AVC pays all variable costs, and what is left over pays only part of the fixed cost because price is below AC.