Assertion (A): In the short run, a firm may continue production even when price is below AC.
Reason (R): In the short run, fixed cost has to be paid even if output is zero.

Both A and R are true, and R is the correct explanation of A.Correct answerYour answerBoth A and R are true, but R is not the correct explanation of A.Correct answerYour answerA is true, but R is false.Correct answerYour answerA is false, but R is true.Correct answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer A

Correct answer: A

Both are true.
Since fixed cost is lost either way (R), producing is better as long as price covers AVC, even if not AC (A).

Concept: Producing below AC
Typical timeTypical: 100 s
Your timeYours: —

The rule this testsProfit maximisation and the firm's supply

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

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

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Assertion (A): In the short run, a firm may continue production even when price is below AC.Reason (R): In the short run, fixed cost has to be paid even if output is zero.

Explanation

Assertion (A): In the short run, a firm may continue production even when price is below AC.
Reason (R): In the short run, fixed cost has to be paid even if output is zero.