{"id":203537,"date":"2025-03-20T03:04:07","date_gmt":"2025-03-20T03:04:07","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=203537"},"modified":"2025-03-20T03:04:09","modified_gmt":"2025-03-20T03:04:09","slug":"if-at-the-mc-mr-output-avc-exceeds-price","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/03\/20\/if-at-the-mc-mr-output-avc-exceeds-price\/","title":{"rendered":"If at the MC = ?MR output, AVC exceeds price"},"content":{"rendered":"\n<p>If at the MC = ?MR output, AVC exceeds price:<\/p>\n\n\n\n<p>Multiple Choice<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>the firm should produce the MC = ?MR output and realize an economic profit.<\/li>\n\n\n\n<li>the firm should shut down in the short run.<\/li>\n\n\n\n<li>the firm should expand its plant.<\/li>\n\n\n\n<li>new firms will enter this industry.<\/li>\n<\/ul>\n\n\n\n<p><strong><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-ast-global-color-6-color\">The correct answer and explanation is:<\/mark><\/strong><\/p>\n\n\n\n<p><strong>Correct Answer: The firm should shut down in the short run.<\/strong><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Explanation:<\/h3>\n\n\n\n<p>In a perfectly competitive market, firms maximize profit by producing at the point where <strong>marginal cost (MC) equals marginal revenue (MR)<\/strong>. However, if the <strong>average variable cost (AVC) exceeds the market price<\/strong>, the firm is unable to cover its variable costs, meaning it incurs <strong>a loss greater than its fixed costs<\/strong> on each unit produced.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><strong>Why Should the Firm Shut Down?<\/strong><\/h4>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Short-run shutdown condition:<\/strong> The firm should shut down in the short run if <strong>price (P) &lt; AVC<\/strong> because continuing production would only increase its losses.<\/li>\n\n\n\n<li><strong>Fixed costs are already incurred:<\/strong> If the firm shuts down, it only loses its <strong>fixed costs (FC)<\/strong>, which it has to pay regardless of production.<\/li>\n\n\n\n<li><strong>Avoiding additional losses:<\/strong> If the firm keeps operating when <strong>P &lt; AVC<\/strong>, it incurs <strong>both fixed costs and additional variable costs<\/strong>, leading to <strong>greater losses than shutting down completely<\/strong>.<\/li>\n<\/ul>\n\n\n\n<h4 class=\"wp-block-heading\"><strong>Comparison with Other Choices<\/strong><\/h4>\n\n\n\n<ol class=\"wp-block-list\">\n<li><strong>Producing at MC = MR and earning an economic profit<\/strong> \u2013 Incorrect. A firm earns economic profit only if <strong>price is greater than average total cost (P > ATC)<\/strong>. If AVC exceeds price, the firm is making a <strong>loss, not a profit<\/strong>.<\/li>\n\n\n\n<li><strong>Expanding the plant<\/strong> \u2013 Incorrect. If the firm is making a loss, it should not invest in expansion. Expansion is considered when demand increases and firms are profitable.<\/li>\n\n\n\n<li><strong>New firms entering the industry<\/strong> \u2013 Incorrect. New firms enter only when there is <strong>economic profit<\/strong>. If firms are shutting down, new entrants will be discouraged.<\/li>\n<\/ol>\n\n\n\n<p>Thus, the correct decision is to <strong>shut down in the short run to minimize losses<\/strong>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>If at the MC = ?MR output, AVC exceeds price: Multiple Choice The correct answer and explanation is: Correct Answer: The firm should shut down in the short run. Explanation: In a perfectly competitive market, firms maximize profit by producing at the point where marginal cost (MC) equals marginal revenue (MR). However, if the average [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-203537","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/203537","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=203537"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/203537\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=203537"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=203537"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=203537"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}