A firm operating in a perfectly competitive industry will continue to operate in the short run but earn losses if the market price is less than that firm's average variable cost but greater than the firm's average fixed cost.

Question

Quizplus · Accepted Answer

A firm operating in a perfectly competitive industry will continue to operate in the short run if the market price is greater than the firm's average variable cost, even if it is less than the firm's average total cost, to cover some portion of its fixed costs. If the price is less than the firm's average variable cost, the firm would shut down in the short run.

A Firm Operating in a Perfectly Competitive Industry Will Continue