In the short run, the lowest price that a perfectly competitive firm will accept without closing its doors is found by examining the average variable cost curve.

Question

Quizplus · Accepted Answer

In the short run, a perfectly competitive firm will continue to produce as long as the price covers at least the average variable cost. If the price falls below this point, the firm would be better off shutting down and producing nothing, as continuing to produce would lead to losses greater than the fixed costs. Therefore, the lowest acceptable price for a perfectly competitive firm in the short run is determined by the average variable cost curve.

In the Short Run, the Lowest Price That a Perfectly