In the short run, the perfectly competitive firm will continue to produce even though it might...
In the short run, the perfectly competitive firm will continue to produce even though it might experience an economic loss if:
a.total cost exceeds marginal cost.
b.the market price exceeds the average variable cost.
c.total revenue exceeds total costs.
d.the market price exceeds the average fixed cost.
Homework Answers
Answer
Option b
b.the market price exceeds the average variable cost
A firm in the perfectly competitive market produces at MR=MC if the price is above minimum average variable cost to minimize losses, as the firm operates at P>AVC then the loss is below fixed costs and if it shutdown then the loss is equal to fixed costs.
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