Changes

Now let's read the question again carefully, which is so important in Economics.  The question says that the price (which is marginal revenue (MR)) is less than the MINIMUM AVC.  That means that MR is ALWAYS less than AVC, for all output Q.

Now let's read the question again carefully, which is so important in Economics.  The question says that the price (which is marginal revenue (MR)) is less than the MINIMUM AVC.  That means that MR is ALWAYS less than AVC, for all output Q.

So let's compare the profit or loss of the firm at two points:  when Q=0 (and thus AVC=0), and when Q>0 (and, as stated in the question, P<AVC, and thus MR<AVC).  The firm is loses money for Q>0, because it is spending more on AVC than it is bringing in as price or marginal revenue.  The firm can reduce its loss by making Q=0.  In other words, the firm is better off by completely shutting down.

So let's compare the profit or loss of the firm at two points:  when Q=0 (and thus AVC=0), and when Q>0 (and, as stated in the question, P<AVC, and thus MR<AVC).  The firm loses money for Q>0, because it is spending more on AVC than it is bringing in as price or marginal revenue.  The firm can reduce its loss by making Q=0.  In other words, the firm is better off by completely shutting down.

''Easy Question'': What is the firm's profit or loss when Q=0 in this problem?  This is an honors homework problem.

''Easy Question'': What is the firm's profit or loss when Q=0 in this problem?  This is an honors homework problem.