Using Figure 9.1, explain what a firm would do in the short run if the market price of its product dropped below P₁.

Name: Using Figure 9.1, explain what a firm would do in the short run if the market price of its product dropped below P 1 .
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The Answer is The firm would shut down since it would be suffering an operating loss. For the firm to remain in business in the short run the price must be equal to or greater than the average variable cost.