In the short run, if the market price is below the firm's average total cost of production, the firm will always shut down.

Question

Quizplus · Accepted Answer

In the short run, if the market price is below a firm's average total cost but above its average variable cost, the firm may continue to operate to cover some of its fixed costs, even though it's incurring a loss. Shutting down is only a definite outcome if the price is below the average variable cost, as continuing operations in such a scenario would increase the firm's losses.

In the Short Run, If the Market Price Is Below