Assume that over the short run, the price a pure competitor can earn when operating where marginal cost equals marginal revenue is less than average variable cost. This firm will:
A) minimize its loss by producing.
B) maximize its profit by producing.
C) minimize its loss by shutting down.
D) maximize its profit by shutting down.

Question

Quizplus · Accepted Answer

If the price a firm can earn is less than its average variable cost, it minimizes its loss by shutting down in the short run, because continuing to produce would mean incurring losses greater than its fixed costs.

Assume That Over the Short Run, the Price a Pure