WAEC Economics 2018 Paper

Concept:Shutdown occurs when a firm cannot cover the costs needed to keep producing.Explanation:In the long run, a firm has no fixed costs because all inputs can be changed. So average variable cost ($AVC$) becomes equal to average cost ($AC$). If average revenue ($AR$) falls below $AVC$, the total revenue is less than total variable cost. In that case, continuing production increases the firm's losses. Therefore, the best decision is to shut down and avoid paying the variable costs. Thus, the long-run shutdown condition is $AR < AVC$. Since $AVC = AC$ in the long run, this also means the firm exits when $AR < AC$. Therefore, the correct choice is the option stating that average revenue is less than average variable cost.Answer:B. less than average variable cost.