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

Question

Quizplus · Accepted Answer

In the short run, a firm will continue producing as long as they can cover their average variable costs. If the price is less than the average variable cost at the profit-maximizing quantity of output, the firm will not be able to cover its variable costs, leading to losses. In such a situation, the rational decision for a firm is to shut down production and minimize its losses. Therefore, choice C is correct. Choices A, B, and D are incorrect as they do not align with the economic theory of perfect competition.

If Price Is Less Than Average Variable Cost at the Profit-Maximizing