A perfectly competitive small organic farm produces 1,000 cauliflower heads in the short run.At this quantity,ATC = $6 and AFC = $2.The market price is $3 per head and is equal to MC.To maximize profits or minimize losses,this farm should:

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In the short run, the farm should compare the market price ($3) with its average variable cost (AVC), which is equal to its average total cost (ATC) minus its average fixed cost (AFC). AVC is $4 (ATC of $6 minus AFC of $2). Since $3 is less than $4, the farm is unable to cover its variable costs and thus should shut down in the short run to minimize losses.

A Perfectly Competitive Small Organic Farm Produces 1,000 Cauliflower Heads