If a perfectly competitive firm cannot avoid economic losses,it should continue to operate in the short run as long as

Question

Quizplus · Accepted Answer

In the short run, a perfectly competitive firm should continue to operate as long as the price exceeds the average variable cost (AVC). This is because in the short run, the firm can reduce its variable costs by reducing the amount of inputs used, but it cannot change its fixed costs. If the price is greater than the AVC, the firm can cover its variable costs and contribute something towards its fixed costs. If the price is less than the AVC, the firm should shut down in the short run as it cannot even cover its variable costs. Therefore, option E is the correct answer.

If a Perfectly Competitive Firm Cannot Avoid Economic Losses,it Should