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.

Answer 1

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.