Refer to Table 14-15-a. What is the lowest price at which this firm would operate in the short run?

• A. The price equal to the minimum average variable cost (AVC)
• B. The price equal to the maximum average fixed cost (AFC)
• C. The price equal to the minimum average total cost (ATC)
• D. The price equal to the marginal cost (MC) at every output level

Answer: (A)

Verified step by step guidance

1. Understand that in the short run, a firm will continue to operate as long as the price covers its average variable cost (AVC). This is because fixed costs must be paid regardless, so the firm focuses on covering variable costs to minimize losses.
2. Identify the average variable cost (AVC) for each level of output from the table. AVC is calculated as total variable cost divided by quantity produced, or it may be directly provided.
3. Find the minimum value of the AVC from the table. This minimum AVC represents the lowest price at which the firm can cover its variable costs and continue operating in the short run.
4. Recognize that if the market price falls below this minimum AVC, the firm would minimize losses by shutting down immediately, since it cannot cover its variable costs.
5. Therefore, the lowest price at which the firm would operate in the short run is the price equal to the minimum average variable cost (AVC).