WAEC Economics 2012 Paper

Concept:When price lies between average variable cost and average cost, the firm covers its variable cost and a part of fixed cost.Explanation:Let $P$ be price, $AVC$ be average variable cost and $AC$ be average cost.The given condition is:$AVC < P < AC$Since $P > AVC$, the revenue generated per unit is greater than the variable cost per unit.Therefore, the firm fully covers its total variable cost.Since $P < AC$, the per-unit revenue is less than average total cost.Thus, the remaining revenue is not enough to cover the full fixed cost, so it covers only part of the fixed cost.Answer:C. all of its variable cost and part of fixed cost