Homework Answers
Since the profit maximizing condition of the perfectly competitive firm is
P=MC
Since the shut-down condition is
Price = minimum of AVC
So if price is greater than the AVC, then it means firm is able to cover full fixed cost as well as some part of its variable cost.
Hence by operating firm can minimise its loss but it can exit industry in the long-run.
Hence if price is between AVC and ATC, then firm should continue to operate and plan for to go out of the business.
Hence option e is the correct answer.
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