In the short run, a purely competitive seller will shut down if product price
A) equals average revenue.
B) is greater than MC.
C) is less than AVC.
D) is less than ATC.

Question

Quizplus · Accepted Answer

If the product price falls below the average variable cost (AVC), the seller will not be able to cover their variable costs, and it will be better for them to shut down in the short run. If the product price is equal to or greater than AVC, the seller will continue production and attempt to cover both variable and fixed costs in the short run. Therefore, options A and B are incorrect. Although option D is also a condition for shutdown in the long run, it does not apply to the short run.

In the Short Run, a Purely Competitive Seller Will Shut