If price is between AVC and ATC, the best and most practical thing for a perfectly competitive firm to do is:
A) raise prices.
B) lower prices to gain revenue from extra volume.
C) shut down immediately, but not liquidate the business.
D) shut down immediately and liquidate the business.
E) continue operating, but plan to go out of business.

Question

Quizplus · Accepted Answer

If a firm's price is between AVC and ATC, it means that it is making enough revenue to cover its variable costs but not enough to cover its fixed costs. Therefore, continuing to operate for the short term is the best option, but the firm should plan to go out of business in the long term if it is unable to increase its revenue or decrease its fixed costs. Shutting down immediately and liquidating the business would result in even greater losses, while raising prices or lowering prices may not be feasible in a perfectly competitive market.

If Price Is Between AVC and ATC, the Best and Most