JAMB Economics 2024 Paper

Concept:A firm must compare its average revenue with its cost of production to decide whether to continue operating.Explanation:In the long run, the firm has no fixed costs because every input is variable.As a result, average variable cost ($AVC$) becomes the same as average total cost ($ATC$).If average revenue ($AR$) is less than $AVC$, the firm earns less revenue per unit than it costs to produce that unit.This means the firm makes a loss on every unit sold.Continuing to produce would only increase the total losses.Since the firm cannot even cover its variable costs, it cannot cover total costs in the long run.Therefore, the best decision is to shut down to prevent further losses.Answer:Option D: less than average variable cost.