A perfectly competitive firm will incur an economic loss but will continue producing output in the short run if the price is:

Question

Quizplus · Accepted Answer

In the short run, a perfectly competitive firm will continue producing if the price is greater than the average variable cost. This is because in the short run, a firm can cover its variable costs (i.e. costs that vary with production, such as raw materials and labor) even if it incurs losses in the short run. However, if the price falls below the average variable cost, the firm will not be able to cover its variable costs and will shut down. Therefore, option D is correct as it represents a scenario where the price is greater than the average variable cost but less than the average total cost.

A Perfectly Competitive Firm Will Incur an Economic Loss but Will