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Question
Refer to the diagram given below and choose the incorrect statement.
Options
E is the equilibrium point.
The diagram shows a situation of normal profit.
C is the shut down point.
E is the break even point.
Solution
C is the shut down point.
Explanation:
In the diagram, E is the equilibrium point since AR (Average Revenue) = MR (Marginal Revenue) equals MC (Marginal Cost), a condition for profit maximisation. The graphic also depicts the normal profit, which is defined as AR = AC. However, the diagram does not include any AVCs. As a result, C cannot be defined as the shutdown point, and E is the break-even point when AR = AC.
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