If the market price is $60, a firm's minimum average total cost is $70, and minimum average variable cost is $50, what should the firm do in this perfectly competitive market?

Question

Quizplus · Accepted Answer

In the short run, if the market price covers the average variable cost but not the average total cost, the firm should continue producing to minimize losses. Here, the price ($60) is above the average variable cost ($50) but below the average total cost ($70), so the firm should continue producing in the short run to cover its variable costs and contribute to fixed costs, thereby minimizing losses.

If the Market Price Is $60, a Firm's Minimum Average