A perfectly competitive firm should reduce output or shut down in the short run if market price is equal to marginal cost and price is:
A)greater than average total cost
B)less than average total cost
C)greater than average variable cost
D)less than average variable cost

Question

Quizplus · Accepted Answer

A firm should shut down in the short run if the market price is less than the average variable cost, as it cannot cover its variable costs and would minimize losses by ceasing production.

A Perfectly Competitive Firm Should Reduce Output or Shut Down