When a perfectly competitive firm produces where AVC

Question

When a perfectly competitive firm produces where AVC < P < ATC, this is called a
A) loss-minimizing strategy.
B) loss-maximizing strategy.
C) profit-minimizing strategy.
D) break-even position.

Quizplus · Accepted Answer

When a perfectly competitive firm produces where its average variable cost (AVC) is less than the price (P) but the price is less than its average total cost (ATC), it is minimizing its losses. The firm covers its variable costs and some of its fixed costs, but not all, resulting in a loss. However, this is preferable to shutting down immediately, where the firm would not cover any of its fixed costs.

When a Perfectly Competitive Firm Produces Where AVC < P