Question

If a firm shut down at a level when AVC = Price, the firm restricts its losses to ________.

• A. total fixed cost
• B. average fixed cost
• C. variable cost
• D. average variable cost

Answer 1

Answer: (A)

total fixed cost

In short run market condition, there are two types of cost incurred by a firm; Fixed cost which does not depend on the production of output and variable cost which depends upon the production of output. There if the price is equal to average variable cost then the firm would incur losses only upto the limit of Total fixed cost.