If the price is greater than the average variable cost and less than the average total cost at the profit-maximizing quantity of output in the short run,a perfectly competitive firm will:

Question

Quizplus · Accepted Answer

When the price is greater than the average variable cost but less than the average total cost, a perfectly competitive firm will continue to produce in the short run to cover its variable costs and some of its fixed costs, even though it is incurring an economic loss. This is because stopping production would lead to a higher loss equal to the total fixed costs.

If the Price Is Greater Than the Average Variable Cost