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WAEC Economics 2016 Question 21

Question 21

Market Structures

At which stage of production should a firm shut down? When

  1. A.AVC = ATC
  2. B.AVC < Price
  3. C.AVC > Price
  4. D.AVC = MC
Show the answer and explanation

Answer: C (AVC > Price)

Explanation

If price cannot cover average variable cost, producing adds to losses, so the firm shuts down.