In the short run, a competitive firm will not produce unless price is at least equal to average total costs.

Question

Quizplus · Accepted Answer

In the short run, a competitive firm will continue to produce as long as the price is at least equal to its average variable costs, even if the price is below its average total costs. This is because, in the short run, the firm will want to cover its variable costs, while fixed costs are sunk and do not affect the decision to produce.

In the Short Run, a Competitive Firm Will Not Produce