Suppose that price is below the minimum average total cost (ATC) but above the minimum average variable cost (AVC) and that the market price is expected to rise at least to ATC in the near future. In the short run, a firm that is a price taker would
A) immediately shut down and get out of the industry.
B) continue to produce a quantity such that marginal revenue equals marginal cost.
C) shut down temporarily, in hopes of restarting in the near future.
D) cut price and expand output in hopes of achieving economies of scale

Question

Quizplus · Accepted Answer

In the short run, if the price is above AVC but below ATC, the firm should continue to produce where marginal revenue equals marginal cost to cover its variable costs and some fixed costs, minimizing losses until the price rises.

Suppose That Price Is Below the Minimum Average Total Cost