The Average Cost of Production at the Profit Maximizing Output

Multiple Choice

The average cost of production at the profit maximizing output level for Jones Inc., is $4 per unit.The average variable cost of production is $3.5 per unit at this output level.The introduction of cheaper substitutes reduces the demand drastically and the market price falls to $1.5 per unit.If the minimum average variable cost the firm must incur is $2.5, identify the correct statement from the following.

A) There are output levels where revenue exceeds variable cost when the price is $1.5 per unit.
B) The firm will continue to operate in the short run.
C) The firm will breakeven at the price of $1.5 per unit.
D) The firm will shut down.