If price is below minimum average variable cost, a profit-maximizing perfectly competitive firm will
A) produce output only in the short run
B) produce output only in the long run
C) produce output in the short run and the long run
D) shut down and produce no output

Question

Quizplus · Accepted Answer

When the price is below the minimum average variable cost, a profit-maximizing perfectly competitive firm will shut down and produce no output in the short run to minimize losses. This is because the firm cannot cover its variable costs, let alone its total costs, making continued operation financially unsustainable.

If Price Is Below Minimum Average Variable Cost, a Profit-Maximizing