In the graph, if the market price is ₹13, what does the firm do in the short run? A firm's short-run cost curves. AVC is lowest at ₹6 (point S, 3 units); AC is lowest at ₹15 (point B, 4 units); the rising MC curve passes through S and B. A price line is drawn at ₹24.

In the graph, if the market price is ₹13,…

In the graph, if the market price is ₹13, what does the firm do in the short run?

Question 22

HardOriginal question

In the graph, if the market price is ₹13, what does the firm do in the short run?

A firm's short-run cost curves. AVC is lowest at ₹6 (point S, 3 units); AC is lowest at ₹15 (point B, 4 units); the rising MC curve passes through S and B. A price line is drawn at ₹24.

Produces at a loss, because ₹13 covers AVC but not ACCorrect answerYour answerShuts down, because ₹13 is below ACCorrect answerYour answerEarns supernormal profitCorrect answerYour answerEarns exactly normal profitCorrect answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer A

Correct answer: A

₹13 lies between minimum AVC (₹6) and minimum AC (₹15).
Producing covers all variable cost and part of fixed cost; shutting down would lose all the fixed cost. So it produces at a smaller loss.

Concept: Producing at a loss in the short run
Typical timeTypical: 100 s
Your timeYours: —

The rule this testsProfit maximisation and the firm's supply

Practise this chapter →

Ten questions from Perfect Competition & Supply, at your own pace.

Practise this chapter →

Ten questions from Perfect Competition & Supply, at your own pace.

In the graph, if the market price is ₹13, what does the firm do in the short run?

Question 22

Explanation