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Home Questions HSA4V4B5CC
Target Exam

CUET

Subject

Economics

Chapter

Micro Economics: Theory of Firms under Perfect Competition

Question:

In perfectly competitive market, when the price is less than AVC in the short run, then the profit/loss of the firm will be ____________.

Options:

Loss = Total Fixed Cost (TFC) plus some portion of Average Variable Cost (AVC)

No loss

Loss =Total Fixed Cost

Loss = Total Fixed Cost plus some portion of Total Variable Cost

Correct Answer:

Loss = Total Fixed Cost plus some portion of Total Variable Cost

Explanation:

The correct answer is Option 4: Loss = Total Fixed Cost plus some portion of Total Variable Cost

When price is less than AVC, this means TR < TVC. This means firm is unable to fully cover its TVC. It is able to cover its TVC only partially with its TR. So the loss will be TFC + some portion of TVC.

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