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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, first 2 conditions for profit maximizing output are satisfied but 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:
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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