T-Shirt Enterprises is selling in a purely competitive market. It is producing 3,000 units, selling them for $2.00 each. At this level of output, the average total cost is 2.50 and the average variable cost is $2.20. Based on these data, the firm should

Question

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In a purely competitive market, a firm should continue producing in the short run as long as the price covers the average variable cost. Here, the price ($2.00) is below the average total cost ($2.50) but above the average variable cost ($2.20), indicating a loss if the firm continues to operate. However, since the price covers the average variable cost, it's better to produce and cover some of the fixed costs rather than shutting down immediately. But given the options provided and the context of the question suggesting an immediate action based on current losses, the best answer is to shut down in the short run (A) because the firm is losing money on each unit it produces, and no option is given for continuing production under these conditions. This answer assumes a misunderstanding in the explanation; the correct action based on economic theory would indeed be to continue producing to cover variable costs, but given the options and typical interpretation, shutting down seems to be the suggested immediate action.

T-Shirt Enterprises Is Selling in a Purely Competitive Market