You are the owner of a burger store in a perfectly competitive market. Recently

Question

You are the owner of a burger store in a perfectly competitive market. Recently your labour costs have increased to a point where the price of a burger, at the profit maximising quantity, has fallen below your minimum value for the ATC. However, the selling price remains higher than your minimum value for the AVC.  

Which of the following statements is true?

A. You should try to increase the quantity of burgers sold to increase profits.

B. You will continue operating to minimise your loss and will make an economic loss.

C. Your burger store will experience normal economic profits.

D. You should increase the price of your burgers to increase revenues.

E. You should shut down as you will not be able to pay your workers and suppliers.

Explanation / Answer

option B is correct

B. You will continue operating to minimise your loss and will make an economic loss. (P > min AVC would mean that some contribution is being made towards covering the fixed costs)

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