Question

The condition for continuing production in the short-run condition is, if at least

• A. Selling price < AVC
• B. Selling price > AVC
• C. Selling price > AFC
• D. Selling price < AFC

Hint:

Economic Production Rules:
Short-run Shutdown Rule $\rightarrow$ Produce if $P \ge \text{AVC}$ (Shutdown if $P < \text{AVC}$).
Long-run Break-even Point $\rightarrow P = \text{ATC}$.

Answer 1

The Correct Option is B

Step 1: Understanding the Concept:
Microeconomic production theory and short-run shutdown rule: a competitive enterprise continues production as long as market price covers Average Variable Cost ($P \ge ext{AVC}$).
Key Formula or Approach:
\[ \text{Short-Run Operating Condition: } P > \text{AVC} \quad (\text{Shutdown Point: } P < \text{AVC}) \]

Step 2: Detailed Explanation:
In production economics and livestock enterprise farm management:
- In the short run, fixed costs (depreciation, land rent, building overhead) are sunk and must be paid regardless of whether production occurs.
- If the Selling Price (P MR) exceeds Average Variable Cost (AVC) ($P > \text{AVC}$):
1. Total revenue covers all variable operating costs (feed, labor, medicines).
2. The excess contributes toward defraying at least a portion of fixed overhead costs, resulting in smaller losses than shutting down.
- If $P < \text{AVC}$, the firm minimizes losses by immediate shutdown.

Step 3: Final Answer:
Thus, the condition for continuing production in the short-run is Selling price > AVC, corresponding to option (B).