If the price is between the minimum ATC and the minimum AVC, then a perfectly competitive firm will shut down in order to maximize profit.

Question

Quizplus · Accepted Answer

If the price is between the minimum ATC (Average Total Cost) and the minimum AVC (Average Variable Cost), a perfectly competitive firm will continue to produce in the short run because it can cover its variable costs and part of its fixed costs, thus minimizing losses. Shutting down would only occur if the price falls below the minimum AVC, as the firm would not be able to cover its variable costs.

If the Price Is Between the Minimum ATC and the Minimum