If a firm sells only pharmaceutical grade aspirin (and no other products) and is

Question

If a firm sells only pharmaceutical grade aspirin (and no other products) and is currently pricing the aspirin below average variable costs, the firm is currently making ________ economic profits.

abnormally high

A firm that produces a product that is characterized by ________ externalities finds it easier to keep its customers from switching to rivals.

negative

________ restrict(s) the ability of the buyer to deal with competitors, and ________ require(s) the buyer to purchase an additional product in order to buy the first.

Explanation / Answer

1. If a firm prices a product below AVC, then the price is also less than the firm's average total cost because, AVC curve always lies below ATC curve. As the price is less than ATC, therefore the firm will make negative economic profit or, loss.

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