Suppose a profit-maximizing firm in a competitive market produces rubber bands.When the market price for rubber bands falls below the minimum of its average total cost,but still lies above the minimum of average variable cost,the firm

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When the market price for rubber bands falls below the minimum of its average total cost, but still lies above the minimum of average variable cost, the firm will experience losses but will continue to produce rubber bands. This is because the firm is covering its variable costs through the revenue generated by the sale of rubber bands, but it is not covering its fixed costs. In the short run, it is not possible for the firm to reduce its fixed costs, so it will continue to produce as long as it can at least cover its variable costs.

Suppose a Profit-Maximizing Firm in a Competitive Market Produces Rubber