In the short run, the best policy for a perfectly competitive firm is to

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In the short run, a perfectly competitive firm should continue to produce as long as the price covers its average variable costs, even if it's not covering its average total costs. This is because, in the short run, the firm has already incurred its fixed costs, and as long as it can cover its variable costs and contribute something towards its fixed costs, it's better off continuing to operate. Shutting down is a better option only if the price falls below the average variable cost, as continuing to operate in such a scenario would lead to greater losses.

In the Short Run, the Best Policy for a Perfectly