Suppose you find that the price of your product is less than minimum AVC. You should: minimize your losses by producing where P = MC. close down because, by producing, your losses will exceed your total fixed costs. close down because total revenue exceeds total variable cost. maximize your profits by producing where P = MC.
If the price of a product is less
than the minimum average variable cost or AVC, this means that the
firm is unable to cover even its variable or operational cost from
the revenues and is running into losses. This the firm should close
down as the losses are more tha the fixed costs. The correct option
is “close down because, by producing your losses will
exceed your total fixed costs”.