Consider a perfectly competitive firm in the short run.Assume that it is sustaining economic losses but continues to produce at the profit-maximizing (loss-minimizing)output.Which statement is FALSE?

Question

Quizplus · Accepted Answer

If the firm is sustaining economic losses but continues to produce at the profit-maximizing output, then it must be true that marginal revenue is equal to marginal cost (otherwise the firm could increase profits by producing a different quantity). Since the firm is incurring economic losses, its price must be less than average total cost. Therefore, statement A is true. And because marginal revenue is equal to price in a perfectly competitive market, statement C is also true. However, statement D is false – in the short run, a perfectly competitive firm should continue to produce as long as price exceeds average variable cost, not marginal cost.

Consider a Perfectly Competitive Firm in the Short Run